Sunday, March 09, 2008

CEO Succession

I was surprised to learn in Good to Great that outside CEOs were not associated with the transition from good companies to great companies. Harvard Business School Professor Joseph Bower picks up on this theme in his recent Marketplace commentary:

What companies really need is what I call in my new book, The CEO Within, an "inside outsider" -- that is, an outstanding inside performer who has retained his or her objectivity. They have energy, ambition and intellectual integrity. They see the magnitude of change needed, and because they are insiders they can move quickly with a real chance of success because they know the people, systems, culture and assets of the company.

Why aren't there more candidates like this available? To begin, a surprising number of companies don't have a real succession process. They treat succession as an uncomfortable event. Managing the development of leaders inside the company requires investment in every aspect of the way the firm is managed: who is recruited, how businesses are organized, how executives are paid and promoted, and how operations are planned and resources allocated. The process requires years, not days, of preparation. Companies need to change their ways on CEO succession or pay a price that goes far beyond the new CEO's compensation package.
At Dartmouth, the Board of Trustees are gearing up for a search for a successor to Jim Wright as the College's president. I wonder if this will have any bearing on the selection of Dartmouth's next president.


eightnine2718281828mu5 said...

Why aren't there more candidates like this available?

Another possibility is that they're available but just aren't recognized.

Or risk aversion on the part of boards; go with the proven external brand rather than take a risk on a home-grown alternative. Better to fail conventionally, etc.

Picking an internal resource could also upset those passed over; maybe going external avoids broader institutional turmoil.

Anonymous said...

The best example today of a brilliant "inside outsider" is Steve Jobs. After he was fired by the Apple board, as an outsider he went on to build a new company (NEXT) and operating system which became the foundation the modern Apple OS (which he brought back when he took the CEO seat again after the outsider (Amelio) failed and was ousted by the board).

Look at the ten year growth curve and stock appreciation in that company. Jobs was able to come back in 1997 quickly build the networks needed to succeed; he knew the culture and assets of Apple because he'd built them in the first place. But the sabbatical he took away from Apple gave him a new perspective, and without it Apple wouldn't have the competition killing operating system it has today, which, of course, has lead to dominance/highest growth rate in vertically integrated consumer electronics. It is the business story of this century.

Anonymous said...

Picking an insider or outsider at a college depends on the needs and immediate goals of the institution.

When I was at a private liberal arts school the president was selected for fundraising ability (to get major donors) because it was what was needed at that time. It worked -- they hired one of the richest and most connected women in the country -- an outsider with contacts to bring in millions of dollars needed in endowment. And she knew why she was there, no question about her role. She brought in the bacon while a lower level dean ran the day to day operations and programming.

Nonprofits don't operate the same way as private industry; fundraising is a big part of the job in nonprofit sector.

Clay Spinuzzi said...

For what it's worth, UT's new president has apparently read the book, because he is now designating specific departments "Good to Great Departments." I had to explain to my chair that the designation came from Jim Collins' book.

Collins also has a monograph entitled Good to Great and the Social Sectors, meant specifically for "social sector" institutions such as public institutions, nonprofits, and not-for-profits.