At some point in their careers, most—if not all—executives aspire to become the CEO of their organization. And why not? However, as with most things in life, aspiration is one thing, and execution is another.
To increase your odds of becoming a viable CEO 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 the board as it comes to terms with succession planning—and attention from would-be CEOs as they plan their careers:
- The careful determination of ‘what this organization needs now’. Some companies might require a completely new direction. Others are trying to shift their focus. Yet others might need radical cost cutting.
- Recognition that the job of the CEO is substantially different from any other job. In my experience, the important differences in the CEO’s job are significantly under-appreciated by most boards—but 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-Inwards: 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.
A CEO is likely to have to invest at least 20 per cent of his or her time working with the Board of Directors.
Whatever the pressing corporate needs may be as perceived by the board, every CEO candidate needs to become expert at these four directional responsibilities. Let’s take a closer look at each.
- Upwards Responsibility (the Chief Relationship Officer role)
The CEO is the individual who ultimately links the operations of the business to the Board of Directors, the family and/or the founder. They have 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 10 per cent of the time commitment).
While generally successful as business leaders, these directors often have no direct knowledge—prior to becoming a director—of the company or the industry in which it competes. 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 to create that linkage.
Achieving this will depend upon the CEO building a strong set of open and transparent relationships with all the key players. A CEO that 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 or 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.
- Downwards Responsibilities: Chief Strategic Officer Duties
In addition to upwards responsibilities, the CEO is the chief strategist for his or her company. As they say, ‘The buck stops here’. He or she must understand the critical value drivers of the business and each of its segments, and thoroughly understand the competitive environment. Only then can intelligent decisions be made about capital and talent allocation
Capital allocation is particularly critical. 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.
- Outwards Responsibilities: Chief Communications Officer Duties
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 or 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 license to operate’. Indeed, given how fragile the license to operate has become, some companies now refer to it as a ‘social privilege to operate’.
- Outwards-Inwards Responsibility (The Chief External Officer Role)
A. G. Lafley, 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. This being the case, how does a CEO go about making these assessments of the nature and likelihood of external forces intruding dramatically into their core businesses? And where does an aspiring CEO gain the experience and judgment to be able to impress a selection committee that they are uniquely able to guide a corporation through turbulent times?
Ginni Rometty, the CEO of IBM, has changed her evaluatory metrics for senior executives to include the following:
- What lessons did you learn this year?
- How were those lessons learned? Were any learned from failure?
- What is your learning plan for the coming year?
This is not 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 North-West, but now we are pivoting to head South-East’.
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—towards reflection. Being busy is not the same thing. 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 these requirements 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 herein, these potential leaders must invest much more of their time in reflecting upon the CEO leadership dimensions and their true capabilities to be high-potential successors.
David R. Beatty, C.M., O.B.E., F.ICD, CFA is the Conway Director, Clarkson Centre for Business Ethics & Board Effectiveness and Professor of Strategic Management at the Rotman School of Management. He also teaches in Rotman’s suite of Executive Education governance programs.
This article appeared in the Fall 2018 issue. Published by the University of Toronto’s Rotman School of Management, Rotman Management explores themes of interest to leaders, innovators and entrepreneurs.To subscribe: >www.rotmanmagazine.ca.
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