So, You Want to Be a CEO?

Any­one with as­pi­ra­tions to be a CEO one day needs to hone their skills around four es­sen­tial build­ing blocks.

Rotman Management Magazine - - FRONT PAGE - By David R. Beatty, C.M., O.B.E., F.ICD, CFA

AT SOME POINT IN THEIR CA­REERS, most — if not all — ex­ec­u­tives as­pire to be­come the CEO of their or­ga­ni­za­tion. And why not? These in­di­vid­u­als tend to be highly am­bi­tious, not just for them­selves but for their busi­ness — and in­creas­ingly, for so­ci­ety. How­ever, as with most things in life, as­pi­ra­tion is one thing, and ex­e­cu­tion is an­other.

To in­crease your odds of be­com­ing a vi­able can­di­date, you will need to evolve your­self in some dra­matic ways. You might well be a suc­cess­ful CFO, Chief Mar­ket­ing Of­fi­cer or head of an im­por­tant op­er­at­ing di­vi­sion with a solid track record of achieve­ment. But such ex­pe­ri­ence — while likely nec­es­sary to be con­sid­ered — is not suf­fi­cient to make you ‘CEO ma­te­rial’.

Based on my 40 years of ex­pe­ri­ence work­ing closely with a wide va­ri­ety of CEOS as a board mem­ber and chair, two ma­jor con­sid­er­a­tions de­mand at­ten­tion from a board as it comes to terms with suc­ces­sion plan­ning — and at­ten­tion from would-be CEOS as they plan their ca­reers:

1. THE CARE­FUL DE­TER­MI­NA­TION OF ‘WHAT THIS OR­GA­NI­ZA­TION NEEDS

Some com­pa­nies might re­quire a com­pletely new di­rec­tion. NOW’.

Just think of the chal­lenges now fac­ing Gen­eral Elec­tric. Oth­ers are try­ing to shift their fo­cus. Glax­o­smithk­line, for in­stance, re­cently tran­si­tioned to a con­sumer prod­ucts CEO, Emma Walm­s­ley, to suc­ceed its pharma CEO, Sir An­drew Witty. Yet other com­pa­nies might need rad­i­cal cost cut­ting, as was the case at Cana­dian Pa­cific Rail­way be­fore the late Hunter Har­ri­son came on board.

2. RECOG­NI­TION THAT THE JOB OF THE CEO IS SUB­STAN­TIALLY DIF­FER­ENT

In my ex­pe­ri­ence, the im­por­tant dif­fer­encFROM ANY OTHER JOB. es in the CEO’S job are sig­nif­i­cantly un­der-ap­pre­ci­ated by most boards — and they should be top of mind for any CEO as­pi­rant. In­deed, these el­e­ments of the role pro­vide a sort of de­vel­op­men­tal tem­plate for the would-be CEO. Four ‘di­rec­tional’ re­spon­si­bil­i­ties make this role sub­stan­tially dif­fer­ent from any other C-suite job:

• Up­wards: CEOS as­sume to­tal re­spon­si­bil­ity up­wards, to the board of di­rec­tors and/or to the founder or the fam­ily owner. There­fore, ev­ery CEO is also the Chief Re­la­tion­ship Of­fi­cer (CRO).

• Down­wards: CEOS make key re­source al­lo­ca­tion de­ci­sions down­wards with re­spect to cap­i­tal al­lo­ca­tion in all its forms.

There­fore, ev­ery CEO is also a Chief Strat­egy Of­fi­cer (CSO).

• Out­wards: CEOS com­mu­ni­cate out­wards to their stake­hold­ers and the pub­lic at large as the com­pany’s per­sona, which means the CEO is also the or­ga­ni­za­tion’s Chief Com­mu­ni­ca­tions Of­fi­cer (CCO).

• Out­wards-in: CEOS are re­spon­si­ble for bring­ing ex­ter­nal in­sights about their in­dus­try and busi­ness(es) in­wards to the com­pany. As a re­sult, the ini­tials CEO could also stand for Chief Ex­ter­nal Of­fi­cer.

What­ever the press­ing cor­po­rate needs may be as per­ceived by the board, ev­ery CEO can­di­date needs to be­come ex­pert at each of these four re­spon­si­bil­i­ties. Let’s take a closer look at each.

1. Up­wards Re­spon­si­bil­ity (Chief Re­la­tion­ship Of­fi­cer)

The CEO of a pub­licly-traded firm, fam­ily-owned com­pany or non-profit en­ter­prise is the in­di­vid­ual who ul­ti­mately links the op­er­a­tions of the busi­ness to the Board of Di­rec­tors, the fam­ily and/or the founder. He or she has the ul­ti­mate re­spon­si­bil­ity for build­ing bridges across what can of­ten be wide chasms. Think of the Grand Canyon — some 20 miles across from rim to rim and a mile deep; on one side you have the man­age­ment team led by the CEO. This group of C-suite ex­ec­u­tives likely in­vests 3,000 hours a year at their jobs and is also likely to have a life­time of ex­pe­ri­ence in their cho­sen in­dus­try. On the other side, in the case of a widely-held, pub­licly-traded com­pany, you have the board of di­rec­tors, who might spend 250 to 300 hours per year at their tasks — a small frac­tion of the C-suite team (eight to ten per cent of the time com­mit­ment).

While gen­er­ally suc­cess­ful as busi­ness lead­ers, di­rec­tors of­ten have no direct knowl­edge — prior to be­com­ing a direc­tor — of the com­pany or the in­dus­try in which it com­petes. They are also likely en­gaged in many other ac­tiv­i­ties, so gain­ing their at­ten­tion can be a chal­lenge. Get­ting across this ‘in­for­ma­tion chasm’ is a crit­i­cal chal­lenge if the board is go­ing to add any value — and it is the CEO’S chal­lenge.

Achiev­ing this will de­pend upon the CEO build­ing a strong set of open and trans­par­ent re­la­tion­ships with all the key play­ers. In a fam­ily-com­pany set­ting, the founders and heirs must all trust the CEO com­pletely, as they have en­trusted unto him/her noth­ing less than the fam­ily legacy. In a pub­licly-traded cor­po­ra­tion, the CEO must build a sim­i­lar set of re­la­tion­ships with the board chair and to a mean­ing­ful but lesser ex­tent, with each of the di­rec­tors. A CEO who is un­able to build strong bonds with these in­di­vid­u­als will more than likely fail and be re­placed.

As­sum­ing nor­mal op­er­at­ing con­di­tions and no ex­tra­or­di­nary stresses, a CEO is likely to have to in­vest at least 20 per cent of his/her time work­ing with the Board of Di­rec­tors. This is a con­sid­er­able time in­vest­ment, and one with its own unique char­ac­ter­is­tics for suc­cess. The CEO must re­gard the board chair/ founder/fam­ily leader as his or her most im­por­tant re­la­tion­ship — period. Noth­ing should be held back or dis­guised. Ev­ery­thing must be com­mu­ni­cated in an open and com­pletely trans­par­ent man­ner.

In ad­di­tion, the CEO — along with his/her se­nior-team col­leagues — must or­ga­nize and man­age the op­er­a­tions of the com­mit­tees of the Board. In most pub­lic com­pa­nies there are at least three such com­mit­tees: au­dit, Hr/com­pen­sa­tion and gover­nance — but there are of­ten many more.

The at­tributes re­quired to suc­ceed in the AT­TRIBUTES RE­QUIRED:

Chief Re­la­tion­ship Of­fi­cer role in­clude a high level of emo­tional in­tel­li­gence (EQ) and the abil­ity to trust your board col­leagues. You have to know when it is time to lis­ten; un­der­stand what you hear; and then act where you deem ap­pro­pri­ate. Also, use your judg­ment to ig­nore what you deem not to be as im­por­tant. This type of judg­ment — know­ing when to act and when to re­main quiet — will be a crit­i­cal de­ter­mi­nant of your suc­cess in com­mu­ni­cat­ing up­wards.

One re­cently re­tired CEO of a widely held, pub­licly-traded

Ev­ery would-be CEO should seek ex­pe­ri­ence on a board of di­rec­tors.

cor­po­ra­tion told me: “This is tricky ter­ri­tory, be­cause it is a bal­ance be­tween a will­ing­ness to ab­sorb and per­haps then act on di­rec­tors’ in­sights and the abil­ity to re­sist weak ar­gu­ments and un­sub­stan­ti­ated per­spec­tives. Di­rec­tors of­ten fly at 25,000 feet, while the busi­ness is run on the ground.”

To gain this ex­pe­ri­ence, ev­ery wouldHOW TO GET THE EX­PE­RI­ENCE: be CEO should seek ex­pe­ri­ence on a board of di­rec­tors. The type of or­ga­ni­za­tion is less im­por­tant than the po­si­tion it­self, but ideally, to be­come a vi­able can­di­date for CEO in a pub­licly-traded cor­po­ra­tion, you should at­tempt to get on an­other pub­licly-traded board. Most com­pa­nies will al­low their se­nior ex­ec­u­tives to sit on one other pub­licly-traded cor­po­ra­tion as long as it is not a com­peti­tor of any kind.

At the very least, the as­pi­rant CEO should join a not-for­profit board in an area of en­deav­our that he/she cares deeply about. Ex­pe­ri­ence on the other side of the board­room ta­ble will prove to be in­valu­able.

It is also the vir­tu­ally unan­i­mous opin­ion of sit­ting CEOS that a men­tor is a huge ben­e­fit. Try to find some­one with ex­pe­ri­ence in the afore­men­tioned board­room trade-offs who has per­spec­tive and wisdom; and some­one with whom the CEO shares the firm’s most del­i­cate-yet-chal­leng­ing pres­sures.

2. Down­wards Re­spon­si­bil­ity (Chief Strate­gic Of­fi­cer)

In ad­di­tion to up­wards re­spon­si­bil­i­ties, the CEO is the chief strate­gist for his/her com­pany. As they say, ‘The buck stops here’. He/she must un­der­stand the crit­i­cal value drivers of the busi­ness and each of its seg­ments, and thor­oughly grasp the com­pet­i­tive en­vi­ron­ment. Only then can in­tel­li­gent de­ci­sions be made about cap­i­tal and tal­ent al­lo­ca­tion.

Cap­i­tal al­lo­ca­tion is par­tic­u­larly crit­i­cal. In the re­cent MCK­in­sey- au­thored book Strat­egy Be­yond the Hockey Stick: Peo­ple, Prob­a­bil­i­ties and Big Moves to Beat the Odds by Chris Bradley, Martin Hirt and Sven Smit, the au­thors clearly prove that dra­matic changes in cap­i­tal al­lo­ca­tion are sig­nif­i­cantly un­der-ap­pre- ciated in most busi­nesses. Fur­ther, put­ting peo­ple into po­si­tions where they can demon­strate these ca­pa­bil­i­ties and build up their strengths is just as im­por­tant as the cap­i­tal al­lo­ca­tion de­ci­sions them­selves. The CEO leads and ul­ti­mately de­cides on these two crit­i­cal al­lo­ca­tion de­ci­sions — which will de­ter­mine the fu­ture of the com­pany. This is a pro­found and vi­tal re­spon­si­bil­ity.

Mak­ing ef­fec­tive re­source-al­lo­ca­tion de­ciATTRIBUTES RE­QUIRED: sions re­quires proven busi­ness judg­ment and an abil­ity to ‘see around cor­ners’ to an­tic­i­pate what is com­ing next. There are hun­dreds of books about strat­egy and many con­sul­tants to help with strat­egy for­mu­la­tion and cul­tural re­newal. How­ever, at the end of the day, the fi­nal as­sign­ment of tal­ent and cash rests with the CEO. Hope­fully, can­di­dates will have had ex­pe­ri­ence with both strate­gic ‘brakes’ and ‘ac­cel­er­a­tors’ — i.e. fail­ure and ramp­ing up.

It will be nec­es­sary to have line exHOW TO GET THE EX­PE­RI­ENCE: pe­ri­ence in mak­ing these types of al­lo­ca­tions. Ap­prox­i­mately 45 per cent of CEO se­lec­tions are peo­ple with a back­ground in op­er­a­tions. A C-suite po­si­tion in fi­nance (25 per cent) or sales and mar­ket­ing (20 per cent) can also pro­vide the needed ex­po­sure, as Ceo-type ac­tions can be ap­praised, eval­u­ated and learned from. One former CEO ad­vised a group of se­nior as­pi­rants from other com­pa­nies: “Get to be a truly global ex­pert at some­thing. Have some spe­cific knowl­edge base that has been ac­quired over time that makes you a global guru.” Put sim­ply, watch, ab­sorb, learn, then act.

3. Out­wards Re­spon­si­bil­ity (Chief Com­mu­ni­ca­tions Of­fi­cer)

In many ways, be­com­ing the ex­ter­nal per­sona of a com­pany is the eas­i­est part of the CEO’S job. Do­ing this well in­volves talk­ing to stake­hold­ers on a reg­u­lar ba­sis, lis­ten­ing care­fully and hear­ing them clearly — all skills that are rea­son­ably easy to ac­quire and de­velop. The CEO must work with key share­hold­ers and an­a­lysts to ex­plain the com­pany’s progress, its fu­ture di­rec­tions and its

plans to achieve them. In ad­di­tion, he/she must un­der­stand the con­cerns and in­ter­ests of grow­ing com­mu­ni­ties of stake­hold­ers. In the age of so­cial me­dia, pre­vi­ously ig­nored groups of stake­hold­ers are be­com­ing in­creas­ingly im­por­tant to main­tain­ing a ‘so­cial li­cence to op­er­ate’. In­deed, given how frag­ile the li­cence to op­er­ate has be­come, some com­pa­nies now re­fer to it as a so­cial priv­i­lege to op­er­ate.

A high de­gree of emo­tional in­tel­li­gence, AT­TRIBUTES RE­QUIRED: an abil­ity to lis­ten care­fully and un­der­stand fully. Also re­quired: stamina and dis­ci­pline. Do­minic Bar­ton, the re­cently re­tired leader of Mck­in­sey, made it his busi­ness to meet with at least two CEOS per day, 50 weeks of the year, for each of his nine years in of­fice. Else­where, the re­cently re­tired CEO of a large pub­liclytraded fi­nan­cial in­sti­tu­tion vis­ited 200 in­vestors per year glob­ally, reg­u­larly met with the heads of all the com­pli­ance agen­cies and vis­ited widely with other stake­holder groups. In to­tal, this CEO in­vested some 25 per cent of the work­ing year in such ex­ter­nal meet­ings.

The mantra here is prac­tise, pracHOW TO GET THE EX­PE­RI­ENCE: tise, prac­tise. As CEO, your time in­vest­ment de­ci­sions will be the most im­por­tant in­vest­ment de­ci­sions you will make. Peter Drucker cap­tured this pre­cept many years ago when he wrote: “If you can’t man­age your own time, you can’t man­age any­thing.”

4. Out­wards-in Re­spon­si­bil­ity (Chief Ex­ter­nal Of­fi­cer)

A.G. Lafley, the former CEO of Proc­ter & Gam­ble, lit­er­ally trans­lated his des­ig­na­tion as CEO into Chief Ex­ter­nal Of­fi­cer. He once said: “I have a dozen ex­ec­u­tives who run multi­bil­lion-dol­lar global busi­nesses and I am un­likely to help them im­prove their per­for­mance. My job is to un­der­stand what is hap­pen­ing out­side of this com­pany and make judg­ments as to when we should move to make changes in­side to re­spond to ex­ter­nal re­al­i­ties.”

It is a tru­ism to­day that the abil­ity to han­dle dis­rup­tive change is of ever-in­creas­ing im­por­tance. We all know that no com­pany will sur­vive for long with­out re­spond­ing to and adapt­ing to ex­ter­nal­i­ties. There are many ex­am­ples of this, but think of Ama­zon in re­tail­ing or Uber in the taxi busi­ness. It would have been cor­rect for all boards of di­rec­tors in these in­dus­tries to make the as­sump­tion that their busi­ness would be rad­i­cally trans­formed over the next three to five years.

A pas­sion­ate cu­rios­ity and re­lent­lessly AT­TRIBUTES RE­QUIRED: in­quis­i­tive mind are the hall­marks of suc­cess in in­ter­pret­ing the changes go­ing on around the globe. Mak­ing judg­ments on such ‘fuzzy’ mat­ters re­quires a men­tal abil­ity to syn­the­size vast amounts of data in or­der to dis­cern pat­terns that could po­ten­tially change the com­pet­i­tive dy­nam­ics of an in­dus­try. One CEO de­scribed this at­tribute to me as an abil­ity to ‘graze’ a wide va­ri­ety of news sources daily. He con­cluded: “By graz­ing across a spec­trum of sources, dif­fer­ent per­spec­tives on com­mon is­sues were eas­ier to com­pre­hend and ul­ti­mately act upon.”

Mak­ing judg­ments on ‘fuzzy’ mat­ters re­quires not only a pas­sion­ate cu­rios­ity, but an abil­ity to cope with un­cer­tainty. When to act, how to act and with what level of com­mit­ment are all wide-open vari­ables. At the end of the day, it will be the CEO’S judg­ment that will de­ter­mine the ac­tions needed, the in­ten­sity of such ac­tions and the or­ga­ni­za­tion of the ac­tions. Withholding judg­ment un­til di­rec­tions are suf­fi­ciently clear is a crit­i­cal at­tribute of a com­pe­tent CEO mind.

To gain ex­pe­ri­ence and im­prove judgHOW TO GET THE EX­PE­RI­ENCE: ment in such mat­ters, as­pir­ing CEOS should be­come keen stu­dents of dis­rup­tive change and closely study the ex­am­ples around them. In a dra­mat­i­cally chang­ing world, there are no guar­an­teed an­swers. There are only tests, tri­als and ex­per­i­ments. One Sil­i­con Val­ley mantra that should be held closely by all lead­ers is ‘Fail fast, fail of­ten, fail for­ward.’ Gain­ing ex­pe­ri­ence in this do­main

As­pir­ing CEOS should be­come keen stu­dents of dis­rup­tive change.

is not easy, but it is crit­i­cal for the would-be CEO. Ask your­self this ques­tion reg­u­larly: Have you in­creased your propen­sity for risk-tak­ing within your own op­er­a­tion to­day — in cases where you will bear the con­se­quences of those risks?

Ginni Rometty, the CEO of IBM, has changed her eval­u­a­tory met­rics for se­nior ex­ec­u­tives to in­clude the fol­low­ing:

1. What lessons did you learn this year?

2. How were those lessons learned? Were any learned from fail­ure?

3. What is your learn­ing plan for the com­ing year?

This is not about fail­ure that counts against you. The fo­cus is on build­ing agility. This is why the word ‘pivot’ has be­come a new man­age­rial mantra — as in, ‘We were go­ing north­west, but now we are piv­ot­ing to head south­east’.

To be ef­fec­tive, you must also be re­flec­tive. All as­pir­ing CEOS should al­lo­cate at least 10 per cent of their time — some 300 hours per year or six hours per week — to re­flec­tion. At least half of this in­vest­ment should be made in learn­ing about ex­ter­nal­i­ties that might seem dis­tant, but could be­come rel­e­vant.

In clos­ing

For mid­dle and se­nior man­agers with as­pi­ra­tions to reach the C-suite one day, pay­ing close at­ten­tion to the four re­quire­ments dis­cussed herein will help to pave the way to this much-de­sired lead­er­ship po­si­tion and in­crease the odds of suc­cess.

For boards seek­ing to en­sure that there are com­pe­tent and ca­pa­ble suc­ces­sion can­di­dates in their com­pa­nies, a much greater time in­vest­ment in suc­ces­sion plan­ning is needed. One es­ti­mate is that boards in­vest only five per cent of their time in top man­age­ment suc­ces­sion plan­ning; if true, this is to­tally in­ad­e­quate, given that the next CEO is highly likely to come from within. A Har­vard Busi­ness Re­view as­sess­ment of the best 100 com­pa­nies out of a global sam­ple of 1,200 showed that an amaz­ing 86 CEOS came from within the com­pany. The same anal­y­sis two years later showed es­sen­tially the same re­sult: 81 out of 100 had been pro­moted from within.

To in­crease the odds of suc­cess­ful suc­ces­sion, boards must take the lead in trans­form­ing their mid-level ex­ec­u­tives into Ceo-ready can­di­dates by in­vest­ing sig­nif­i­cantly more of their time and at­ten­tion in men­tor­ing their promis­ing lead­ers. And as in­di­cated, these po­ten­tial lead­ers must in­vest much more of their time re­flect­ing on the four CEO lead­er­ship di­men­sions and their true ca­pa­bil­i­ties to be high-po­ten­tial suc­ces­sors.

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