The Who Matters: the Right CEO

The Wall Street Journal reported that CEO turnover is on the rise (Wall Street Journal, January 13, 2009, Joann S. Lublin, page B1).  Dirk Jenter, an assistant finance professor at Stamford University’s business school noted that turnover “doubles in bad times.”  That means over 100 CEOs from the S&P 500 had better start polishing their resumes. 

In truth, most of these changes are late.  Boards have failed to take action on the most important “who” decision they must make: selecting CEOs. For example, how can GM’s board have allowed Rick Wagoner to remain in place after the company’s stock has fallen 94% since he took over in 2000?  How can they support him when the company is relying on taxpayer money to recover and yet is already behind on its commitments?  It hasn’t made sense to shareholders for eight years, and now taxpayers will feel the pain. 

The who matters, and there is no greater who than the CEO.  Boards must take a hard look at the people they have in place and ask themselves with all seriousness, “Do we believe this person has at least a 90% chance or better of succeeding?” If the answer is anything short of a resounding “yes,” it is time for a change. 

Making a change is a big deal, and here’s where boards fall short again.  In our experience, most selection committees rely on voodoo hiring methods to pick their next CEO.  They create long wish lists that no single person could embody.  They draft candidates from good-old-boy networks and insider short lists.  They evaluate their finalists using informal interviews and make a decision based on gut feel.  And in the end, they forget to sell their finalist on joining, often forcing them to start all over when the candidate backs out in the final hour.  It is time for boards to stop relying on these sloppy approaches. 

There is a better way: an approach we call the A Method for Hiring that we have watched succeed over 10,000 times.  To clarify the mission and role, create a scorecard that lays out the specific outcomes you expect the new CEO to achieve.  To find great candidates, network aggressively, especially outside of the industry.  To pick the right person, use a chronological, structured interview to truly get to know the candidate, and then go back and rate the scorecard to see if you have a fit.  To sell the person on joining, focus on the factors that matter: fit, family, freedom, fortune, and fun.  

 The right CEO can rescue a troubled company and create enormous shareholder value.  The wrong one can drive the company straight into Chapter 11.  We call on all boards to select and back CEOs who will help pull our economy out of the rut.

Written by Randy Street

blog: http://www.thewhomatters.com/

book: http://www.whothebook.com/

Smarter Hiring Article

Marshall Goldsmith, author of What Got You Here Won’t Get You There, writes the "Ask the Coach" column on the Harvard Business Publishing Discussion Leaders site. The most recent article is called 'Seven Steps to Smarter Hiring'; Geoff and I had the pleasure of working with Marshall on this article.

I highly recommend that you read the article, as well as the other interesting and informative articles on management that Marshall has written.

Written by Randy Street

blog: http://www.thewhomatters.com/

book: http://www.whothebook.com/

Survivalists, Retrenchers, and Opportunists

The “who” matters more in this economic climate than during any other time in recent history. Companies will literally rise and fall based on how they respond to the downturn. From my discussions with CEOs and investors, I have learned that there are at least three, distinct approaches that business leaders are taking.

1. Survivalists. The first approach has a singular goal: to survive. Those in the financial services, transportation, and retail industries, to name a few, are slashing costs as aggressively as possible to compensate for radical profit pressure. Mass lay offs are inevitable given that labor comprises 50-70% of most companies’ P&L. We have already seen massive cuts from Citigroup, General Motors, and DHL, to name a few. I suspect we will see a lot more turnover before we hit bottom.

The worst thing a Survivalist can do is cut indiscriminately, which only leads to disaster. Witness Circuit City, whose CEO implemented a “wage management initiative” in 2007 (a fancy way of saying, “Let’s get rid of our most expensive and experienced people.”) As the New York Times reported, things did not work out very well for Circuit City. “The 'wage management initiative' erased morale, both for employees and the folks who shopped there. Sales sank after the one-time gain from the layoffs. And last week, the company sought bankruptcy protection.”

The right question for Survivalists to ask themselves is “Who should we keep no matter what?” Talent matters. It always has and always will. One A Player can produce more than three B or C Players. So figure out who is producing and who is not, and make your difficult cost cutting decisions based on that. Then, do everything in your power to engage those who are left to encourage their continued loyalty. The future of your business is in their hands.

2. Retrenchers. The second approach to the economy is using the downturn to retrench. Even in the midst of budget restrictions and cash conservation, some companies are making strategic bets now that won’t pay off until later.

Polly Pearson, Vice President of Employment Brand and Strategy Engagement at EMC, reported in her blog that EMC is taking this approach. She reported that CEO Joe Tucci said, “What you do in a downturn predicts how you do in the upturn.” In the last downturn, Tucci invested heavily in areas that mattered, like R&D, while cutting with precision elsewhere.

Private Equity firms are taking a similar approach in their portfolios, with a particular focus on CEOs. A Private Equity Analyst-Holt Compensation Study showed that firms are optimistic about hiring and staffing in key areas that set the stage for future growth.

The right questions for Retrenchers to ask themselves include “Who can I invest in to strengthen my team during the downturn?” “Would A Players do better than the B or C Players currently in key roles?” And “Who is on my virtual bench – talented people I could hire in the future when the market opens up?”

3. Opportunists. The final approach companies are taking is investing in sales and other strategic areas to purposefully grow through the downturn. The idea is to grab share while competitors are fighting for their lives.

I recently spoke with one CEO who plans to grow his business development team by 47% in 2009. Another told me it was the chance of a lifetime to pick up significant market share while his weaker competitors were down. Both of these CEOs recognize the short term difficulties they will face, but neither have let that daunt them from taking advantage of the opportunity.

Jena McGregor, in her article Managing Employees in a Downturn (BusinessWeek, October 23, 2008) wrote “…smart leaders see downturns as having plenty of upside, too. Talent is cheaper. Companies can gain market share as others cut back. And savvy investments give bold players a head start when the economy picks up.” She cited Bain & Company as an example of an organization hiring aggressively during the downturn, targeting former consultants who went to financial services firms, and now may be stranded. Bain’s worldwide managing director, Steve Ellis, said, “This is a huge opportunity to grab very talented people.”

The right questions for Opportunists to ask include “Who can I hire to leapfrog my competitors?” And, “Who is available now for hiring that was not available before?”

Regardless of the approach your company is taking, one thing remains constant: getting the “who” right. Who matters now more than ever, whether you are trying to survive, retrench, or opportunistically grow in this market.

Written by Randy Street
blog: http://www.thewhomatters.com/
book: http://www.whothebook.com/

Dear President-elect Obama: Please Hire Well

President-elect Barack Obama has just started the most important task he faces as the next Commander in Chief: picking his team. If he selects the right people, he stands a chance of becoming a great President. If he selects the wrong people, he could go down as a weak President. Charismatic speeches and promises of change will only get him so far. Now, the rubber must meet the road. The choices he makes now will set the stage for his entire Presidency.

Fortunately, early evidence suggests that Obama understands one of the great truths of leadership: Do what you do best and hire specialists to do the rest. He seems to be taking this process very seriously.

Obama is doing many things right. He is selecting his White House staff first, before getting into the more arduous process of selecting his Cabinet (which requires confirmations from the Senate). Throughout the process, he is exercising extreme caution to ensure he gets the right people. This bodes well for future Cabinet selections.

Candidates for top jobs must answer a 63 part questionnaire on a variety of topics, designed to unearth potentially embarrassing, unethical, or generally questionable practices. The New York Times reported that even relatively junior staffers must provide copies of every version of their resume that they have ever created (For a Washington Job, Be Prepared to Tell All, 11/13/08). The idea is to flag inconsistencies and embellishments that grew over time. We must credit Obama’s team with their caution. The media has built Obama up to rock star status. Scandal would bring him down like a lead balloon.

In “The Welchway” on page 130 of the current issue of BusinessWeek (11/13/08), Jack and Suzy Welch identify a few traps Obama could fall into: rewarding loyalists, hiring those who lust for prestige, and focusing attention on crisis hires (e.g. Treasury Secretary). These are certainly risk areas for Obama.

I add another big one to this list: hiring people with the big name and impressive resume without really understanding the fit with the current situation. 'A' Players from the past may be 'C' Players today. We live in a different world with different needs. Assuming someone who has succeeded in previous administrations will succeed in Obama's is a risky bet. Experience is important, but the right experience is even more important.

I can’t help but think how much better Obama’s selections would be if he added two simple practices to his process: 1) build scorecards for every role to define clear outcomes and expectations, particularly for the more senior roles where having people who can accomplish his goals really matter, and 2) use the Topgrading Interview to gather the data needed to truly vet a candidate.

Without these two practices, Obama runs the risk of achieving exactly the same success rate as most managers: 50%. If he uses scorecards and Topgrading practices, he could tip the scales in his favor and achieve a 90% success rate.

Let’s hope he gets it right either way.

Written by Randy Street
blog: http://www.thewhomatters.com/
book: http://www.whothebook.com/

Costly Mistakes

Making a hiring mistake can be unbelievably costly.

I recently delivered a workshop based on "Who" to a group of 25 small business executives. Three CEOs, several heads of HR, and many other executives attended. I was curious to hear what as going on in their businesses given the recent market collapse.

One of the CEOs relayed a story of just how damaging his biggest hiring mistake was to his business. “I lost $40 million of business because I had the wrong VP of Sales,” he said. “He botched some key deals that he never should have blown up. It was incredibly painful for me and terribly frustrating for the business.”

Ouch. That is a huge cost to a small business.

Another CEO jumped in and echoed the story. “I had a VP of Sales who set my business back at least a year,” he said. “He never could get it together and I finally had to remove him.”

Not to be outdone by these CEOs with their sales woes, an HR leader told the story of one of her bigger blunders. “I hired a recruiter who had such a negative attitude that she irritated managers and actually chased candidates away. I spent more time cleaning up her messes than the time it took to do the recruiting all by myself.”

$40 million in lost business? Business being set back at least a year? Recruiters who chase candidates away? These stories play out in business every day. The wrong people in the wrong roles doing the wrong things can cripple a business.

What’s amazing is just how prevalent hiring mistakes continue to be. Peter Drucker once estimated that 50% of all hiring decisions are mistakes, and I see that playing out among managers around the world every day. Everybody does it. It isn’t like we learn how to do it right in school.

When times are good, companies can afford to make a mistake here and there. But times aren’t good. Mistakes like this can cause serious damage, set you back, and make the looming recession far more painful than it has to be.

Written by Randy Street
blog: http://www.thewhomatters.com/
book: http://www.whothebook.com/

Why Who?

Geoff and I share a fundamental belief in the power of capitalism. When you put financial resources in the hands of the right people, they build stronger companies that create valuable goods and services for society, employ more people in jobs they enjoy, and generate more tax revenue. That tax revenue translates into better schools, defense for the country, and the ability to address other critical needs. We become stronger when capitalism works.

Businesses break down when they have the wrong “who” in place. Capitalism is only as good as the people behind it, and the wrong people in the wrong roles doing the wrong things actually drain resources from the economy.

I discovered these truths first hand in my own career. I studied as a mechanical engineer at Rice University, but joined the work force as a strategy consultant with Bain & Company. I received a marvelous, hands-on education to business through my five years with Bain which I supplemented with an MBA from Harvard Business School. Through that entire period, I thought great strategy was the key to success.

I joined a software company still holding onto that belief only to realize that strategy without execution was not much better than the paper it was written on. Great thinking without the daily work of getting things done was not enough. As head of sales and marketing for the company, I turned my attention to execution matters – goal setting, process improvement, and tactical maneuvering – with the expectation that great execution would solve my problems.

It didn’t work. The performance of the sales team varied widely. Some were phenomenal, closing business in highly competitive accounts with little regard for my tactical recommendations. Others struggled, in some cases because they ignored best practices, and in other cases in spite of following them. That’s when it dawned on me: Strategy and execution do not matter until you have the right people on the team.

Who you hire must come first.

I joined ghSMART with an abiding passion to help leaders learn this fundamental secret to success. Get the “who” right, and everything else falls into place. The right people develop great strategies. The right people execute against those strategies. The right people in the right roles doing the right things make all the difference. You’ve heard the expression, “You are what you eat.” In business, “You are who you hire.” It is the single most important decision you can make in business.

What began with workshops and seminars to teach these principles evolved into research and publications, and ultimately Geoff’s and my book, Who: The A Method for Hiring. We set out to write a book that would offer a solution to every manager’s number one problem: making costly hiring mistakes. What resulted was a simple, practical guide to hiring that anyone can put into practice.

Like our keynotes and workshops, the book is entertaining, educational, and easy to follow. The topic is so important that we fully expect the book will be something that every manager has on his or her bookshelf for decades to come.

But I am getting ahead of myself! Ultimately, we wrote Who for you to help you with your business today. Apply its principles, and you will enjoy your career more, make more money, and have more time to do thing things you love most.

Geoff and I wish you the best of luck as you build your team of “A Players.” In the meantime, please check back every so often or subscribe to our blog for more thoughts on getting the "who" right in your business.

Written by Randy Street
blog: http://www.thewhomatters.com/
book: http://www.whothebook.com/