The New CEO – Internal vs External Appointment?

 

 The main job of the board is to provide an outstanding CEO who delivers the organization’s purpose and goals. The responsibilities of this job are to hire, induct, encourage, support, resource, reward, manage, monitor, control and, if failing, dismiss the CEO.

The departure of the current CEO may arise in several ways – by retirement, resignation, dismissal, incapacity or death. And may appear on the board’s agenda with notice periods ranging from hours to years. Let’s examine the board’s options in filling its CEO vacancy.

The Decision Tree may go like this: –

  • Secure the leadership of the business by appointing an Acting CEO and by reassuring people and clients
  • Examine what needs to be done in and for the business –
    • Evaluate what shape the business is in – strategic and cultural health, competitive position, risk
    • Reaffirm or modify goals, strategies and plans
    • Examine and prioritize projects
    • Evaluate what needs immediate fix – Leadership and BAU
    • Develop timetable and budget
  • Determine the Person Specification for the role
    • The universals
      • Commitment, Character and Competence
      • Match of core values
      • Relevant experience
      • High performance track record
      • Constructive relationships with stakeholders and clients
      • IQ and EQ
    • Specific to the business needs
      • Continuity or Change; Steady or Dynamic
      • Acceptable level of risk in the appointment
      • External reputation / message
      • Internal constraints – SMT and other key stakeholders
      • Talent Market
      • Cost

 

To the Question – Internal vs. External Candidates? It depends.

Internal is safer because the person is known, cheaper because recruitment fees are avoided, quicker because the promotion can be immediate, calmer for the organization, and encouraging to all aspiring employees.

External is necessary if the business has failed to develop a CEO-in-waiting, has no-one who fits the Person Specification, or requires transformational leadership or a new skill set. It is considerably more risky, expensive, slow and frequently wasteful,  of knowhow, momentum, team synergy and passed-over candidates.

 

In observing board preferences, it seems that SME boards generally go the conservative route, putting much emphasis on continuity of team, know-how, networks and culture, and minimization of risk and cost.

Publicly listed companies often signal a global search, to reassure the market that a world-beater is sought – but tend to settle for an internal candidate. When they take the risky road but make a bad appointment, the damage to profits, organizational confidence, corporate reputation and share price can be massive. Examples of Fletcher Building and Fonterra spring to mind.

High schools in major cities are an interesting study. Rarely does a Deputy Principal get chosen. In the biggest decision of their tenure, Boards of Trustees tend to play for high stakes, going to the external market, even when the school is judged by ERO and themselves as being in fine shape and needing no radical change.   In recent years, a number of unfortunate appointments to Auckland high-decile schools have resulted in the pain of a very public termination. One wonders why the trustees of a State School (Crown Entity) or independent educator would adopt such a risky approach?

Competence and Skills Culture Decisionmaking Leadership Reputation Risk Succession