Vol. 48, No. 4
When a new CEO comes to town, it's up to HR to ease the transition.
CEO churn is at an all-time high. Increasingly, new CEOs enter a company, fail to deliver and are sent packing. Sometimes, if they do produce results, other companies snatch them up. Either way, the process starts all over again.
Turnover among chief executives soared 53 percent between 1995 and 2001, according to the 2002 study “Why CEOs Fall: The Causes and Consequences of Turnover at the Top,” conducted by Booz Allen Hamilton of McLean, Va. The number of CEOs who left their jobs under pressure more than doubled during that period, and average CEO tenure plunged more than 23 percent, according to the study of 2,500 publicly traded companies.
A different study—“CEO Turnover and Job Security,” released by Drake Beam Morin (DBM) in September 2002—estimates that two-thirds of the world’s companies have changed CEOs at least once in the last five years.
Denis St-Amour, president of DBM’s Center for Executive Options in New York, says executives typically are “gone in three years—not necessarily because they’re not doing the right thing, but because they’re not doing it fast enough.”
CEOs are under enormous pressure to deliver results quickly. And that, in turn, places pressure on HR executives to offer proper and timely support. It is vital for an organization’s health—and for HR executives’ prospects of continued employment—to help a new CEO hit the ground running fast.
For new CEOs, the die is cast within the first six months or so, and HR leadership in that period can be decisive, says Dan Ciampa, a former CEO who advises leaders moving into new positions. “If you look at people who haven’t made it vs. people who have, the HR person has been better, has played a more central role in helping the CEO get better in the first six to 12 months,” says Ciampa.
“When you don’t have competent HR people—and I don’t think enough are competent at what I’m talking about—they’re going to leave the CEO high and dry.”
Meet the New Boss
Usually, meeting with the head of HR is among a new CEO’s top priorities. In that visit, the CEO is looking for indications that HR has value.
It’s important to get off on the right foot. First impressions can lay the foundation for a fruitful partnership—or, as the HR chief at Centegra Health System discovered, they can be deadly. Shortly after Michael Eesley, Centegra’s COO, moved into the top slot at the faltering health care provider in suburban Chicago, he summoned his vice president of HR and asked how things were going.
“Great,” was the reply. Eesley followed up with specifics: “How are we doing with retention and filling vacancies? Who are the peak performers? What’s important to staff?”
When the answers didn’t come, Eesley sent the executive packing. “If you don’t have answers to those questions, you’re not serving the organization,” he says.
Eesley upgraded HR to senior vice president status and appointed a former consultant to the post. “Now when I ask HR how we’re doing, they say, ‘In what category, sir?’”
CEOs pride themselves on their ability to size you up fast. “The CEO has to have an innate sense of people,” says Wes Wheeler, former CEO at DSM Pharmaceuticals in Greenville, N.C. “You get pretty good at recognizing quality. I can sit with a person for an hour and tell if he or she is a player, whether the person’s blowing smoke or not.”
When Wheeler joined DSM early last year, he needed to replace the top HR executive, who had resigned. Wheeler recruited Nancy Anderson to be vice president of HR and help manage his transition. Anderson got the nod because of her business acumen and her HR expertise.
“It’s very obvious to the CEO whether you get it or not,” Anderson says. “If you only understand the HR part of the business, there won’t be rapport. If HR is too bound up in systems and processes, any CEO will get turned off very quickly.”
Too often, HR professionals turn the boss off with HR-speak and minutiae, agrees Lou Forbringer, SPHR, president of OE Solutions, a management consulting company in St. Louis. “We may as well put beanies with propellers on the tops of our heads and walk around with pocket protectors,” says Forbringer. “The CEO turns his back on us; he sees us coming.”
A Good First Impression
How can HR professionals make sure they don’t turn off the new boss quickly? Ideally, you should start building knowledge about—and a relationship with—the new CEO long before that person moves into his or her office.
Hopefully, you were involved before the search for a new CEO or designated successor began. HR should be a player, advising the board—by providing counseling and reading materials, offering facts and dispelling myths—about what to look for in a leader.
“Help the board go through the process of establishing criteria for selection before they go out falling in love with candidates,” says Forbringer. “Look at where your organization is in its lifecycle and ask what ideal characteristics are needed for someone who is going to lead.”
Even if you weren’t involved in the selection process, you still can do your homework ahead of time—and increase your chances of survival. Learn whatever you can about the new CEO as soon as possible.
“I’d like to find out as much as I can before he comes to town,” says Forbringer. “Talk to people from where he came, people who know of him by reputation, read articles. It’s remarkable how much you can discover on your own.”
“Don’t assume he’s in love with HR,” cautions Bill Maxwell, senior vice president for global human resources, diversity and facilities at Cendant Mobility in Danbury, Conn. “Find out what this person has been doing before and the kinds of HR programs that were there.”
Don’t wait for your CEO to call you, suggests Nat Stoddard, CEO of Crenshaw Associates, an executive outplacement firm in New York. “Get out there and make contact—preferably before he shows up,” he says. “Demonstrate value by encouraging him not to take a tempting pre-entry vacation during the transition, but to use the time to study and inform himself. Offer to provide information, open doors and answer questions.”
Once the CEO has arrived in town, you can try to get a sense of his or her leadership style by meeting outside of the office. Maxwell seeks a relaxed, social setting.
“Typically, I invite them out to dinner and say, ‘I want to get to know you better, get a read on your leadership style.’” In the three transitions Maxwell has helped engineer, each CEO agreed to the meeting.
“Then I kick back and ask them, ‘What is your operating style? How do you lead? How do you want to move forward in terms of strategic planning?’ One knew what he wanted from me, had a checklist,” Maxwell says. “Another said, ‘You’ve given me great information, just keep what you’re doing. If I want to change, I’ll let you know.’ The third said, ‘Frankly, I don’t know what to do with the HR function.’”
Next, make sure you communicate the new CEO’s vision to your staff. Do it early and often.
“As soon as I knew what the CEO was thinking, I passed the word along,” Maxwell recalls. After each CEO transition, he met personally with the HR team and told them where they needed to change or where they met the new boss’s approval.
What CEOs Want
Knowing your new CEO’s style alone, however, isn’t enough. You also need to provide the guidance and information that person needs. But what type of information do new CEOs want?
“I would hope that this wonderful HR person would walk through my door and tell me exactly where we are with our employees and what we need to do,” says Terrie Jones, CEO of AGSI, an information technology company in Atlanta.
“Give me the feedback of what’s working well and what isn’t,” says Jones. “Tell me about our employees’ concerns and issues. Have a current employee satisfaction survey ready as baseline, a report showing where we are in compensation and benefits, and an overarching plan of what it will take to make us an employer of choice. Be prepared to tell me where we are today and what you’d like to do that’s most important.”
Many new CEOs, such as Wheeler, were hired to get the company back on course. When housecleaning is warranted—as it often is—HR needs to take the lead. “Help me identify the non-performers and put in a process that enables me to purge the mediocre people that are dragging everyone else down,” Wheeler says.
Wheeler’s partnership with Anderson apparently worked. He left DSM in mid-March—after just one year with the company—to become president of North American operations for ICN Pharmaceuticals Inc. of Costa Mesa, Calif. In announcing Wheeler’s appointment, ICN officials credited him with establishing a new leadership team at DSM and with turning the company around, increasing both new business and profitability.
How can you help ensure that level of success for your new CEO? Have data on hand that demonstrate your plans for the future of the organization’s HR function, suggests headhunter Jeff Christian, CEO of Christian & Timbers in Cleveland. “Be able to come up with a succession planning document. Have facts, figures and ideas—bring them all to the table—all designed to show how you intend to make your HR operation best in class.”
Harvey Resnick, regional director at the Hay Group, a global management consulting firm in Norwalk, Conn., agrees. “Be clear about the few things the organization needs to be doing in the next year or so in the area of human capital,” he says. “Be prepared with metrics: retention rates, average sale per employee, cost of goods per employee and the like. What’s the vacancy rate? What have you done to fill it? What are our costs of benefits? What have we done to manage the costs?”
Other tips include:
- Demonstrate that you can think like a business partner. Maxwell focuses on the executives who report to the CEO, highlighting potential problems and issues that could have a negative impact on overall performance, and identifies possible weaknesses and problems in their likely successors.
- Have reports in hand with executive summaries, but don’t load up on paper. CEOs value frank discussions and oral analysis. Maxwell comes armed with succession plan summaries and organizational charts, and he is prepared to respond at whatever level of detail the boss requires.
- Present the materials appropriately. “Synthesize, bulletize, put it on one page,” says Forbringer. “Remember not everything is important. Try to find out what’s important to him, and how he likes to get information. Is he a detail person? Does he prefer a general overview? When all else fails, just ask him.”
- Talk about the practical things you’re working on that are crucial to the organization’s productivity. Break things down based on ease of implementation and possible impact.
- Show your flexibility and creativity. “He doesn’t want to hear too much about ‘how we did it before,’” advises Ken Somers, senior vice president for Human Capital Associates in Bellaire, Texas.
- Don’t overlook the emotional aspects of the CEO’s transition. Lend an ear; show that you’re sensitive to the numbing stress and isolation.
“Understand the pressures this guy’s under and that there will be times he will do something really stupid, miss something, blow up at something,” says Ciampa.
You can also help the CEO by providing questions key people typically have for executives during a transition.
Along the same lines, you can help new CEOs get the message out about who they are and how things will change under their leadership. Build a CEO visibility and communications plan with benchmarks set at 30, 60 and 90 days. Look for symbolic initiatives that will resonate through informal as well as formal channels.
“If the past CEO had multiple secretaries and closed doors, the new guy who walks around, opens access to him, will have high impact in demonstrating what he wants to be,” Resnick says.
Bearing Tidings, Good and Bad
Whatever you say to the new CEO, it should be as straightforward and direct as possible. CEOs say they want straight talk, and HR often is best positioned to be the messenger.
“Move quickly to establish that you’re the eyes and ears into the organization and that he can count on you to give him the unfiltered truth,” says Deborah Barber of the Jackson Hole Group, a health policy think tank, and former vice president for HR at Aspect Communications in San Francisco.
HR professionals “get a lot of information that other executives don’t get about the pulse of the organization,” agrees Maxwell. But he cautions that “sometimes it can be pretty ugly, so you have to understand how open you can be. The incoming CEO may only want to hear good stuff.”
But Somers says the choice is easy. “You have to be brave enough to speak bluntly and honestly to the CEO. Either you’ll be rewarded or punished. If your candor is appreciated, you’ve won; if it’s not, you move on and you’ve still won. You have to maintain your integrity.”
Robert J. Grossman, a contributing editor of HR Magazine, is a lawyer and a professor of management studies at Marist College in Poughkeepsie, N.Y.