The Business Case for Successful CEO Transitions

A short article by Navid Nazemian, Global Head of HR – Group Finance at Vodafone

 

It’s your first day in a new CEO role. You’ve received your tech toys, required software, a functioning email address, access to the intranet, your new employee badge, and the required access to the board-level floor. Smooth onboarding, one would think. Not really, I’d say.
A recent study found that 70 percent of CEOs are either underwhelmed by their onboarding process or have had no structured onboarding process at all (Byford, Watkins, and Triantogiannis 2017). What would please about 99 percent of the employee population in a company is nowhere nearly sufficient for CEO-level onboarding.
A study from the Aberdeen Group looked into the onboarding processes of 282 organizations. They found the difference between organizations that get onboarding right and the laggard companies (bottom 30 percent) is significant. Best-in-class companies (top 20 percent) were able to distinguish themselves across key performance criteria (Lombardi 2011):

• 96 percent of first-year employees were retained, as compared to 18 percent of employees at laggard organizations
• 82 percent of employees hired in the last twelve months met their first performance milestone on time, as compared to 3 percent at laggard organizations
• 18 percent year-on-year improvement in hiring manager satisfaction, compared to a 1 percent decrease among laggard organizations
• Improvement in customer satisfaction by 12 percent and customer retention by 10 percent, compared to a 2 percent improvement of each at laggard organizations

The competitive maturity assessment of the same study distilled the common characteristics of the best-in-class organizations, too. They involved a wide range of stakeholders, from individuals to company executives, taking ownership for their role in ensuring the productivity of newly hired employees.
The best-in-class also used a structured and standardized onboarding process that addressed both tactical and strategic elements. They also used metrics to measure and improve the process continuously, as well as partially automated certain elements of onboarding to free up resources to focus on engaging and socializing new employees. An interesting observation is 52 percent of the best-in-class organizations involve their senior ranking executive leaders in the onboarding process, compared to 29 percent of the laggard organizations (Lombardi 2011).

 

The Ripple Effects

Another study from the Corporate Executive Board (CEB) examines the ripple effect of high-impact leadership transitions. They examined over thirty thousand executive leader transitions, enriched further by hundreds of executive leader interviews. They found the direct reports of a struggling transitioning executive leader on average perform 15 percent worse than those who report to a high-performing one, so a clear performance drag (CEB 2012).
Furthermore, in comparing the likelihood of the direct reports of high performing versus struggling transitioning leaders to be highly engaged or remain in the organization, they found a statistically significant difference of 20 percent. If we add to this the set of executive peers whose productivity is enhanced because they depend on the executive leader and additional business opportunities that are generated, the ripple effects of executive transitions become truly magnified.
Lastly, CEB’s rich database suggests any large organization has seventy senior executives on average. With about 12 percent being replaced annually, this results in eight senior executive transitions each year. Despite this predictable pattern, many organizations approach CEO transitions like mergers and acquisitions. We know one of the most commonly identified factors when it comes to failed deals is ineffective post-merger integration. Similarly, most executive transitions fail because of poor “integration” of the CEO into the new role in an organization.
The best organizations truly understand the ripple effects (both positive and negative) and orchestrate a structured and externally supported CEO transition process. This process would mobilize internal resources and apply innovative tools and systemic approaches to assist the newly appointed CEO with a set of high-impact transition activities.
Significant research has been conducted to evaluate the benefits of successful onboarding and executive transitions. Many studies have focused on benefits related to the CEO in transition. However, the benefits are threefold, benefitting at least three distinct groups of stakeholders.

 

Benefits for the CEO

A successful transition has proven to reduce the likelihood of derailment by up to 50 percent (Wheeler 2009). A structured and supported CEO transition also mitigates key transition challenges and associated risks. In return, enhanced role satisfaction is a clear benefit for the CEO.
The other benefit that shouldn’t go unnoticed is baseline productivity levels are reached in a shorter space of time. This has been measured in many studies and the results are an accelerated transition that is up to 50 percent faster than with the peer group who didn’t get the structured transition support.
Lastly, it becomes obvious how successful CEO transitions will pay a dividend in an area that has not been mentioned yet: the future trajectory of the CEO’s career, such as a higher likelihood to be promoted externally after one or more successful transitions.

 

Benefits for the Organization

The most obvious benefit is successful CEO transitions reduce the risk of high-stakes placements and potential costs related to mis-hiring. Studies show that mis-hiring at the executive level is highly costly, with an estimate of somewhere between 10 to 30 times the salary cost of an executive (Fatemi 2016).
Corporate Executive Board (CEB) research suggests that successful CEO transitions demonstrates that 90 percent of leadership teams whose CEO had a successful transition go on to achieve their three-year performance goals. In those teams, the attrition risk is 13 percent lower than the rest (Keller and Meaney 2018).
A successful transition also suggests the organization is making better—if not the best—use of the CEO’s unique talents and potential. It is a strong and clear demonstration of the commitment to the executive and their professional development.
Furthermore, if part of the mandate of the new CEO is to change the organizational culture, then a structured transition supported by an executive transition coach can facilitate the adoption of a new and supportive organizational culture and management style. Also, it helps to reduce organizational anxiety by sending signals of proactive and thoughtful leadership.

 

Benefits for the Stakeholders

The RBL Group, a Human Resources consulting firm, published their findings in “The Leadership Gap,” a study with 430 portfolio managers and institutional investors. They found the top three criteria for an investment decision are: how the company performs with 38.5 percent, industry favor- ableness with 33.1 percent, and quality of leadership with 28.4 percent (Ulrich 2020).
What is particularly interesting is the RBL Group also measured the confidence levels these investors had in their ability to assess the three criteria. The lowest confidence intervals were shown at the quality of leadership with 3.75 or a standard deviation of 0.96 versus 0.58 for performing firms and 0.66 for industry favorableness. That means investors and portfolio managers have the lowest confidence level when it comes to being able to measure the quality of leadership.
Part of what makes the quality of leadership is onboarding the CEO effectively and minimizing their chances of derailment. With these findings, we are now able to relate financial investment decisions to companies with their executive transition process.
Another obvious benefit is the combined result of having a high-performing executive, their leadership team, and the organization. It exudes confidence to the management board and to investors. We can see how greater alignment of an organizational strategy with cultural execution can increase employee engagement levels and the business performance of an organization.
Successful CEO transitions also provide a platform for thoughtfully engaging external stakeholders. When we look at what the younger generations truly want from their organization, it becomes obvious some of the above are not “nice-to-haves” but indeed “must-haves.”
The Business Case for Successful CEO Transitions is a no-brainer. Where are you on this journey?

 

---

Navid Nazemian is a Global Head of HR at Vodafone and Executive Transition Coach.
Navid helps executives and their leadership teams accelerate, develop and successfully transition into new roles. He is the author of Mastering Executive Transitions – The Definitive Guide, a #1 new release and international bestseller on Amazon. Navid is a globally recognised Coach and a thought leader in executive transitions. As an accomplished corporate leader he has lived and successfully worked in five countries across six sectors. His background spans over two decades of HR experience in some of the world’s most admired organisations at country, regional and global leadership level, in both emerging and developed markets. Navid’s coaching clients have achieved game-changing results and work for companies such as ABB, BP, Coca Cola, Colgate-Palmolive, KMPG, Shell and many more.