The Rise of the Not-So-Experienced CEO
When looking to hire a new CEO, corporate boards of directors are increasingly bypassing C-level executives and appointing less seasoned leaders.
They are still looking for chiefs with the traditional attributes of intelligence, integrity, and stamina—traits that have defined great executives for decades. But boards are now also seeking CEOs who understand signals in today’s unpredictable environment and are comfortable acting on them—abilities that directors hope will more than offset candidates’ relative inexperience. All too often, C-level executives are overly focused on internal issues and opt to invest in familiar opportunities rather than taking bold risks.
My colleagues and I have observed the “leapfrog” phenomenon both in our client work and through research. We have reviewed hundreds of corporate announcements and websites, interviewed numerous leadership experts, and conducted an analysis of CEO changes and successions over the past five years at S&P 500 and Global 100 companies. Through this effort, we have observed certain characteristics of this emerging trend.
The phenomenon of fast-track CEO succession appears to be most prominent in the retail, technology, media, and telecommunications sectors—all of which are particularly affected by disruptive business models and new competitors. Some recent CEO appointments in these industries include Yahoo!’s Marissa Mayer, Google’s Larry Page, Burger King’s Daniel Schwartz, Microsoft’s Satya Nadella, PetSmart’s David Lenhardt, and GameStop’s J. Paul Raines.
Many of these CEOs were appointed in their thirties and forties, but accelerated promotion, not age, is what defines a leapfrog leader. General Motors’ Mary Barra and Aetna’s Mark Bertolini, for example, were in their fifties when they became CEOs—but they still experienced a faster path to the top spot than the typical succession timeline of their companies.
Boards are reaching deeper into the companies they oversee to find executives who embrace disruptive technologies and digital media; have a proven record of innovation; are confident global citizens, able to operate in developed, emerging, and frontier markets and lead across diverse cultures; have an acute understanding of shifting demographics in their customer base; and have adaptive leadership traits, such as exceptional curiosity, open-mindedness, and the courage to act.
These attributes are some of the characteristics of a leapfrog leader. Attuned to the times, he or she has a stronger chance to uncover and release a company’s latent potential. A leapfrog leader will likely face stiff opposition in the form of vested interests and traditional practices. But he or she understands the company’s cultural norms sufficiently to ignore some of them without disrupting business continuity.
Although leapfrog CEO appointments come about for various reasons, when considered together, these successions seem to fit into one of two broad scenarios.
In the first, a corporate board persuades a high-performing and dependable CEO to stay longer than planned at the helm to keep a steady hand on the tiller, maintain progress, or weather an upcoming storm. When the CEO finally retires, however, business conditions are even more complex and the environment is even more uncertain. Believing that the company needs a change of course and a new kind of leader—one with more relevant experience and a more future-oriented perspective—the board passes over senior executives, who have “aged out” of consideration, and chooses a less seasoned leader.
In the second scenario, a planned CEO departure occurs during a time of uncertainty. The company is anticipating disruptive or disorienting forces, such as unfamiliar regulatory pressures, industry consolidation, complex emerging technologies, or changing consumer behavior. In response, the board searches for a leader who understands these dynamics. Given that senior leaders often share the same worldview as the departing CEO and could prove to be out of touch with the changes sweeping through the industry, the board looks to the third level of management.
In short, in one set of circumstances, the incumbent CEO remains in place long enough that executives in the next level may not have the forward-looking perspective needed; in the other, the succession plan happens to kick in at a critical time when the company needs leadership that has firsthand, on-the-ground experience with fast-moving change in the industry or technology.
It is still too early to tell whether instances of fast-track CEO succession are a coincidence, a fad, or a full-blown trend. But one thing is clear: boards and companies can take a number of actions to help new CEOs succeed and expand the field of internal CEO candidates.
Boards must remain engaged during the grooming and transition of new leaders. When considering the promotion of a relatively junior executive to the position of CEO, boards can have the candidate tested and prepared by ensuring an appointment as president, CFO, or COO. Placing the candidate on a corporate board will help him or her gain experience interacting with directors. And having the candidate sponsor a major enterprise initiative will give him or her the opportunity to mobilize other leaders across the organization.
The board can also continue to ensure the success of leapfrog leaders after their ascension to the CEO role. Keeping the roles of CEO and chair separate for the first year could allow a new CEO to get traction at the company while the chair manages the investment community. And establishing a clear transition process for assuming the CEO role and a first-year plan will also help the new chief get off on the right foot.
Some senior leaders may be disappointed that they were passed over for the top spot in favor of a more junior candidate. The company should anticipate some departures and make contingency plans to appoint replacements and reach out to stakeholders. At the same time, the company should try to encourage bypassed executives by expanding their responsibilities and offering them opportunities to diversify their experience.
To expand the field of internal CEO candidates, boards should revisit and revise the company’s succession processes, reconsidering the capabilities required at the top—for senior leaders as well as the CEO—and identifying promising candidates early in their careers. Moving some senior leaders from their positions to give younger candidates opportunities to gain the necessary experience may be prudent.
Most important, fast-tracking a leader and appointing him or her CEO should always be made for the right reasons. A leapfrog candidate should never be the “least worst” option. The more planning that goes into developing candidates for various future leadership scenarios, the more options a board will have for choosing a successor that best suits its strategic agenda. Forward-looking companies identify front-runners early on and groom them for success. A fast-track CEO succession should be the product of a deliberate strategy, not of desperation.
The author would like to acknowledge the contribution of BCG colleagues Gerry Hansell, Kaye Foster, and David Baron, who assisted in the development of these ideas.