This post is an excerpt from a Business Magazine article, September 2016, on how to make the transition and further, develop for the CEO role. To read the full article, please go here. Note: the article is in Romanian.
What are the arguments for and against selecting a CEO from inside the company versus recruiting one from another company?
I don’t think the recruitment channel is important but rather the process through which you define the correct CEO profile, for the time being but also for the future. Only after this profile is clarified the channel comes into play. Still, one risk for bringing an outside CEO is related to culture match and adaptability.
A successful CEO is a function of the company context, strategy, culture, tenure lenght, leadership team, politics. All of these define a set of competences. This is why the best CEO, regardless where he comes from is the one that fulfills most of the requirements for the job and the one who is able to increase the engagement of the leadership team.
Outside CEOs struggle to understand the new company, its ways of working, the people, the company history while internal CEOs strive to let go of the operational side and learn how to lead a business from a farther place. Relationships change a lot for internal promotions. The former colleague becomes the boss and the pressure is immense for the newly appointed CEO. I recently coached a CEO under pressure to prove that he was the fittest to the role, he was overwhelmed.
One of the challenges of first time CEOs is about delegation. Another one is about information management. And yet another one is about identifying the right people for the leadership team.
For and against arguments are tied to the varying criteria of selecting a CEO, and there is no right recipe yet. There are famous cases of brilliant CxOs that were successful many years in a row, promoted to CEO positions in the same organization - and they failed miserably because CEOs require a different set of skills. Also, there are cases of outside CEOs failures. Thus, selecting the right CEO takes precedence over the manner of selecting her or him.
Compared to other markets, do companies in Romania prefer to groom an internal CEO vs selecting an outside one?
Unfortunately there are no statistics about this. Probably there is a slight preference of all companies to groom an internal CEO - and not only in Romania. In Romania - an apparent reason for this preference is tied to cost savings, because in Romania this is seen as a virtue as opposed to more mature markets.
At this level - when selecting a person able to decide and influence the situation of the company and hundreds of jobs - cost savings should be the last thing on your mind. The costs of the wrong appointment to CEO are huge, much larger than any executive recruitment company fees.
Yet, if we talk about lower levels - board members - the preference should be for internal promotions. A healthy ratio of outside vs inside succession plan names is about 10-20% for the outside recruits.
How difficult and long is the process of forming a CEO? What does it entail?
For first time CEOs is can be quite challenging. There are also special executive training programmes that address just this issue - first time CEOs, the transition to general management. There are many competencies required for a CEO that cannot be developed or trained for in a lower level role - such as: relationships with state entities, with investors, multicultural leadership, organizational behavior, emotional intelligence, strategy, understanding technology and global trends, making decisions, long-term value creation and so on.
To be responsible for the success of a company without being able to control the majority of its causes, it’s not an easy task.
We’ve had some coaching opportunities where the transition to CEO position took 6 months, other times it took almost 1 year.
How many Romanian companies have programmes meant to identify, develop and keep talent?
There are no statistics about this either. I believe that most of the companies with healthy leadership have such programmes. Open programmes on the other hand, are not so good. From what I’ve spoken to CEOs and HR Directors, very few measure ROL (retun on learning) or what is the impact of the investment in developing key people. Many companies choose these programmes without a good understanding of what comes next.
For our leadership development programme we were talking what is the exponential impact of regular follow-up and measurement of behavior changes, following the attendance to our programme.
The question is how expensive it is for a key person to leave, not how much does it cost me to develop her. The former is much larger than the latter.
An executive should have a successor. How often do you see this happening?
This is a very important aspect and it’s tied to the company’s health, its culture, its moment of development. Mature companies have this process very well laid out.
In their effort to cut costs, companies also cut the budgets for training and development. Is this true also for leadership positions? Are there any changes during the past years at this level?
Yes, we do see an important shift taking place - more focus on developing key people and not just executives. For the past two years the interest for this type of programmes has increased exponentially. For K.M. Trust we see an increase of 60% versus last year.
What are the types of programmes that shouldn't be missing for a CEO?
Besides short executive programmes with big name universities (London Business School, INSEAD, IMD, IE, HEC, Harvard, IESE, Wharton, Stanford, Singularity University) or with local universities (Asebuss, WU, Maastricht, Sheffield, etc) there are: coaching, mentoring and certain executive development programmes that can add a lot of value.
Also, I am very proud of the Values-Driven Exponential Leadership programme we developed after many years of executive recruitment and executive coaching. It’s a programme that addresses the leadership model of the new competitive environment VUCA (volatile, uncertain, complex and ambiguous).
We place a lot of focus on self-knowledge, self-management, resilience training, training the emotional intelligence and also on the right recruitment methodology of key people and on developing them. When we talk of key people, mass receipes do no work.
The Values-Driven Exponential Leadership programme also includes follow-up, monitoring and measurement of the attendees’ evolution. The feedback is sensational - with a rating of 1.7 on a scale from -2 to 2, from over 50 people that attended the course in 2016 alone.
I believe that no development effort in key people is a waste if you abide by certain steps and if there is quality behind that effort. Good people will appreciate and will be motivated by any effort you put behind their development. It is also an investment in retention.
Back to cost cutting: have you noticed a preference for Romanian CEOs vs expats? Are expats more costly than local leaders?
Because we talk about CEOs, cost is not the main criteria for mid and large companies. Of course, it’s important, but the impact in business can be much larger than the costs incurred with appointing a CEO. In general, expats have relocation costs, schooling for their children, insurances, rent - all of these drive up the package. For example the American School in Bucharest can cost over 45k eur for 3 kids.
How important is the expat experience for the CEO position?
In a world as connected as ours, as globalized, it’s very important. Multicultural exposure, getting outside your comfort zone are very important life experiences that can add a lot of value to a CEO.
Usually, how big is the selection pool for CEO role?
Romania is particular in this respect. For such roles we scan about 400+ prospects and narrow down to 3-4 candidates, both internal and external. We recommend scanning the entire market local and even international market for the best candidates, in order to ensure the best decision. Sticking solely to internal candidates can limit the potential of the role.
If we were to give a ballpark estimate - how expensive is to develop a CEO?
If we take into account an EMBA/GEMBA, MBAs, short executive programmes and so on - I recommend going to the above-mentioned universities websites and you will find all the answers. Typically they amount to 100k-120k eur plus expenses.
A coaching programme could be around:
- 150-200k euro/year for an international coach with exceptional reputation
- 80-100k euro/year for an international coach with medium reputation
- Over 20,000 eur/year for a local coach with high reputation
- 5-10k eur/year for a local coach with medium reputation
A good coaching programme can have an impact, yet it usually it takes around a year with monthly sessions. Also, coaching doesn’t work with “fixing” people - for whom coaching is a last shot at staying with that company. Coaching works with successful people who are determined, courageous, with a learning mindset, people who really want to be better and love people.
A good executive local or international programme varies between 10-30k eur depending on length, follow-up sessions or later evaluations.