By Stephen A. Miles, Vice Chairman of Heidrick & Struggles
Boards of directors are demanding that their CEO possess particular qualities to help lead their companies into the new era. Our experience coaching CEOs and advising boards around the globe shows that companies are willing to make a bold change at the top, even if that means having to go to the external market and search for a new chief executive. We anticipate this trend will continue through 2011 and into 2012, unless there is another catastrophic event to send companies back into survival mode.
7 CEO Skills Needed for the “New Reality”
To arm themselves for growth, boards are looking for seven specific criteria in their potential CEOs. Those criteria are:
1. Can stand up to a “stress test” — “Just as financial institutions were stress tested to show the strength of their balance sheets, leaders also need to be stress tested. How has the CEO candidate held up under sudden pressure? What serious challenges — bankruptcy, regulatory action, etc. — has the potential CEO had to work through in his career? These types of events typically reveal character and capabilities. As we have seen in the past few years, many CEOs who thrive during long bull markets are not up to meet real challenges, while others rise to the occasion. Boards are looking to bet on leaders who have been tested and have demonstrated that they can thrive and even flourish when the chips are down.”
2. Possessing a keen “risk radar” — “The leader must be able to get the whiff of smoke before it is a forest fire. CEOs today need to use Socratic leadership to ask questions and test people and the organization. They must have the acumen and sense to know when something seemingly innocuous actually can carry catastrophic risk for the company.”
3. Being immersed in the global geopolitical ecosystem — “It is no longer satisfactory to ‘grow up’ in a single company and single industry, and nor can CEOs delegate the delicate task of managing their company’s governmental relations. Boards are looking for leaders who are connected to a much broader ecosystem that includes government leaders, regulators from around the world, special interest groups, activist shareholders, and peers across industries. CEOs must work across company lines, across industries, and across cultures in order to represent their company in a meaningful way.”
4. Willingness to scrap old business models — “Business models in every industry are changing and require leaders who are willing to ‘experiment’ and throw away ‘the way things have always been done’:
• “In the pharmaceutical industry, there is a tectonic shift in their definition of ‘customer’: it is moving away from doctors and toward procurement and/or hospital administrators.
• “In technology, we see the transition from packaged programs to cloud-based computing and ‘apps,’ which are moving from mobile devices and onto computers next.
• “In the airline industry, there is the shift in the carriers from ‘selling seats’ to more of a merchandising approach where you can shop for your ticket, get an upgrade, buy your baggage allowance, get a meal, book your hotel, and rent a car — all in one bundled package.
• “In the petroleum industry, leaders must consider the rising nationalism in countries and the focus on national oil companies, and they must be able to articulate a value proposition that makes sense for that country if they seek to enter that market.
• “In publishing, the death knell has been put on pause with the invention of the iPad and other mobile devices; the publishing industry has a chance of rebirth in the digital age — if they can adapt to this new reality.”
5. Being able to innovate their way into productivity gains — “As companies begin hiring again in 2011 and 2012, productivity gains will be harder to achieve. It will be critical for leaders to develop their own innovation engines to create opportunities to compete and in some instances defend their positions. While Apple is the poster child for innovation, this isn’t just about the technology sector. Leaders across all industries must figure out how to invent — this is how they will separate themselves from the herd.”
6. Taking governance seriously — “Both boards of directors and external constituencies such as politicians, activist shareholders, and regulators have been empowered by the crisis and are intolerant of any sense of imperial leadership. They are willing to take any leader on and make an example of them. CEOs must embrace governance in an open and transparent manner in order to effectively manage these constituencies.”
7. Having a “purpose” — “The simple yet powerful notion of ‘the profit motive’ is not good enough anymore for these same constituencies. People are sick of the corporation-as-parasite extracting value from whatever it touches. CEOs need to think about symbiotic relationships that still allow them to run profitable and sustainable corporations that also have a broader purpose for all of their stakeholders.”
“The CEO that is needed today is much bigger than an operations or finance master. A re-thinking of globalism, technology, and customers — as well as an acute consciousness of how stress and risk can affect corporate viability — is driving real changes in what it takes to thrive as a corporate chief.”