Many companies don’t have the right CEO to lead their transformations. Just look at the dreadful 70% failure rate for business transformations and at the incredibly high percentage of established companies of all sizes that should have, but that have not yet, started their transformation journeys.
There are very few conversations board members will find more uncomfortable than deciding what to do with the incumbent CEO when they are not meeting expectations. This already awkward conversation can get even more delicate when the CEO has played an important role recruiting the board members, or when the CEO has done a good job running the core business.
However, when transformations falter, the issues can almost always be traced back to lack of accountability and commitment from the CEO. And since Boards co-own the outcome of their companies’ transformations, they must take decisive steps to set their companies for success.
While the answer on what to do with the incumbent CEO is far from straightforward, Boards should consider the following questions when faced with this kind of situation.
Is the CEO doing a good job in the core business?
If the CEO is not doing a good job in the core business and has struggled to get traction on transforming the company, the decision should be pretty straightforward: it is time to find a new CEO. However, that is not the most common case Boards face.
If the CEO has been doing a good job in the core business but failed to get started on the transformation or to deliver results once the transformation journey has started, the Board needs to probe deeper, starting with the CEO’s buy-in.
Does the CEO believe in the need to transform, and are they committed to its success?
If the CEO doesn’t believe in the need to transform, Boards can work with consultants and other executives to develop the case for change and try to convince the CEO of the urgent need to reshape the company’s operations. In this scenario, Boards must also pay close attention to the insights and rationale that CEOs bring to the table, so as to inform future decisions. Are the concerns raised by the CEO coming from a place of discomfort and fear of change, or are they coming from sound business issues that must be taken into consideration as the new solution gets developed?
Just to be clear: there is no going around securing the CEO’s commitment to the need to transform. People tend to act in accordance with their beliefs, and there is no way the CEO will be able to convince the company to change if they don’t believe it themselves. Transformations require an unwavering confidence in the vision and stamina to withstand all the adversities faced along the way.
If the CEO believes in the need to transform and is committed to the transformation, it is time to test their level of accountability for the transformation.
Is the CEO fully accountable for the transformation?
Even when CEOs believe in the need to transform, they may not necessarily see themselves as the person responsible for the transformation. Often, they will assign the transformation to another executive, who will in turn become responsible for its success.
It may seem “safe” for the CEO to delegate the accountability of a transformation, especially when they don't have much expertise in this area. However, this is a slippery slope that often leads to finger pointing, corporate politics, and to a distancing of the CEO from the transformation effort. Delegating leadership of the transformation is only okay if full accountability remains with the CEO.
Boards can ensure accountability by rethinking how to tie the CEO’s compensation to the outcomes of the transformation (in fact, Boards should consider doing the same thing for the entire executive team). This is not the place to be timid: a bonus/LTI plan of 50% core business and 50% transformation clearly shows that both are equally important. While this 50/50 approach is a great start, Boards can do even better by structuring the bonus to be paid and LTI to be awarded only if both the core business’ and transformation’s goals are achieved. This is a great tool to drive alignment with the CEO and guarantee that the right discussions take place at the right time.
If the CEO believes in the need to transform and is fully accountable to the transformation, it is time to ensure they have the right skills to transform.
Which critical skills needed to deliver a successful transformation is the CEO missing?
In another article, I explained the essential characteristics CEOs must demonstrate in order to be successful in leading a company’s transformation: emotional intelligence, accountability, strategic mindset, authentic communication, change agent mindset, bias for action, and understanding of technologies and their applications.
However, the extent to which a CEO demonstrates each of those characteristics is often not binary. To make matters even more complicated, there is a lot to be said about the relationship between the CEO and employees (even more so when the CEO is also the founder), which may make up for some of the CEO’s existing shortcomings. The secret is to identify which gaps can be closed through coaching or supplemented with help from other executives or external resources, and which ones can not.
CEOs who are open to being coached can turn what seems to be a bad situation into a teaching moment for the entire organization, sharing their struggles and their commitment to personal improvement. This role modeling can be a powerful catalyst to inspire employees to follow suit.
For other gaps that can’t be closed through coaching, the company must find someone (or, more likely, someones) internally or externally who can compensate for the CEO’s shortcomings. Keep in mind that this arrangement is a delicate one at best, since it can only work if the CEO has enough humility to recognize their limitations and is committed to making it work. Obviously, this solution won’t work for CEOs with huge egos and low emotional intelligence.
What if the answer to any of the questions above is “no”?
If the CEO doesn’t believe in the need to transform and won’t commit to the transformation, won’t take accountability for the transformation’s success, or can’t find a way to address critical skill gaps to successfully lead the effort, the Board is then faced with a tough predicament.
When possible, Boards should see this as an opportunity to acknowledge that the arrangement in place is no longer working on behalf of the company and start looking for a new leader. However, there are a number of situations where that is not a possibility - at least not in the short term.
If the CEO can’t become the right leader and can’t be removed from the business, should the Board give up on transforming the company? Yes and no.
On one hand, it won’t do the company any good to kick off a company-wide transformation program without the right CEO to lead it. Doing so would be setting the company up to join the ranks of failed transformation attempts from the get go, while making it harder to start another transformation effort in the future when the CEO issue is resolved.
On the other hand, there is a lot that can be done even without the uber transformation umbrella: there are significant operational improvements to be captured, customer experience elements to be improved upon, new technologies to be adopted, and data that could be mined for insights. Boards must then work with CEOs to identify which initiatives should be pursued, ensuring that there is alignment and a belief that the CEO will commit and support the effort. Even if not a transformation, companies can still generate tremendous value by pursuing these more discrete initiatives over time.
If even that is not a viable option for the incumbent CEO, then it is time to reevaluate whether to continue as a board member in that specific company. You may be better off providing your expertise and guidance to a company that is excited to thrive and that needs your experience.