What are the must-haves for a CEO today? They include “values aligned to the organization,” “ability to anticipate and adapt” and “ability to thrive under conditions of ambiguity,” says Amy Radin, executive in residence at Progress Partners and a former member of the Association of International Certified Public Accountants’ global board of directors. William Hudson, director of Sasser Family Holdings, advisory board member of UCW Logistics, and director and president international of H.D. Hudson Manufacturing Company, adds that the key attributes of a lead executive must include “strong leadership skills,” “strategic vision” and “appreciation for people and culture.”
It’s not easy to find leaders who possess all these traits (and it should be said that both Radin and Hudson identified several more than those listed). This is why the board needs a detailed process for identifying potential candidates, a list of the best questions to ask during the interview process and an understanding of the red flags that can reveal which candidates might be wrong for the company.
Defining the search process
According to Hudson, a board of directors can’t choose the right CEO unless they understand where they are as a company. That includes the core competencies that make the company successful, the culture of the organization and the skill sets that would be required to drive the company forward. Equally important is a well-defined process for identifying and evaluating CEO candidates in the event of a transition. Hudson recommends that the process should include seven essential steps:
- Identification of key qualifications and characteristic for the CEO role
- Search committee creation
- Candidate pool development
- Thorough background checks
- Candidate interviews
- Choosing the candidate with the “best fit”
- Transition plan preparation
If that seems like a lot to do on the spur of the moment, that’s because it is. Hudson believes the identification of potential CEO replacements should be an ongoing process.
“This will ensure that the company is prepared for the unexpected and that the company’s leadership is always in good hands.”
Radin believes that the job is often too big for the company to do on its own. She recommends the designation of an executive search firm to help with the process, ensuring that it is one that aligns with your company’s goals.
“Choose the right firm and, more importantly, choose the right team within the firm. Choose the team that has convinced you that they are excited about the search and will bring strategic value and critical thinking, not just candidate profiles. Check their references and be familiar with their process.”
An internal or external candidate?
Hudson says that the choice between an in-house candidate and one procured from the outside the company depends on the specific circumstances of the business, namely its financial prospects, the wishes of its shareholders (especially if it’s a family-owned business), the desired skills and experience of a new CEO, the company’s future goals and whether there’s a need for fresh perspective. He does acknowledge that in-house and outside candidates offer certain advantages. Internal candidates have a deeper understanding of the company’s culture, operations and industry, while outsiders are untied to the company’s existing culture, which comes in handy if significant changes are desired.
Whether the top candidates come from inside or outside the company, Hudson believes one factor that must be consistent is a thorough CEO search process by the board.
“It is better to cast a wide net at the beginning, giving the board of directors a better pool to choose from.”
Radin believes that every organization should have at least one viable CEO candidate in-house, even if it’s someone who would best serve as interim CEO. “If not, the board of directors should reflect upon the root cause of not having this candidate and address that going forward.”
She says internal candidates “can ensure continuity, bring hard-to-replicate institutional knowledge and internal relationships,” but outside candidates may prove more useful if a change in direction is required.
“They bring no internal ‘baggage’ because they don’t own past decisions, so they may feel more freedom to make changes,” says Radin. “They may bring a fresh skill set or industry perspective that can help the company make bold moves more quickly.”
The best questions to ask
When interviewing a CEO candidate, the “What would you do if…” type questions simply aren’t as important as learning how your candidates think and how they engage with others, says Radin.
“This approach is much more revealing of what a person is really like. You want to learn what they have really done in past, similar circumstances.”
Hudson says that the board should be sure to ask questions about the following areas:
- Strategy and vision
- Leadership style
- Industry and market knowledge
- Operational and financial acumen
- Risk management
- Communication and stakeholder engagement
- Experience with ESG and sustainability
- Flexibility and adaptability
“It’s important to note that the best interview questions will vary depending on the specific needs of the company and the role of the CEO,” says Hudson. “The board should tailor their questions to the company’s specific circumstances and the desired qualifications and experience of the CEO.”
Key interview personnel
Once you have your questions for potential CEO candidates lined up, the question becomes “Who should be asking the questions?” Hudson says the interview team should include the board of directors, the chairman of the board and the head of the human resources department, with the company’s leadership team stepping in as the process narrows to perhaps two candidates.
“It would be useful to have the leadership team participate in what I call more casual interviews,” says Hudson. “Their input will give the board another important viewpoint from the people that will likely be working with the new CEO. Additionally, it allows the candidate to assess what may become his or her team.”
But in light of the high-profile struggles of some companies that have let a departing lead executive play a major role in the identification of their successor (Disney, for example): If the prior CEO is leaving in a cordial fashion, how much of a role should they be allowed to play in identifying the next CEO? Hudson says that role should be extremely limited.
“If the former CEO’s departure is amicable, they may be able to provide valuable insight and perspective on the company and the role of the CEO. However, it’s important that the process remains independent and unbiased, so it’s recommended the former CEO does not play a direct role in identifying the new CEO. They can still provide valuable input to the board, but the board should be the one who make the final decision.”
The family dynamic
Of course, these dynamics change if the current CEO is a family owner. When that is the case, they will need to be involved. To Hudson, that includes development of a CEO specification sheet.
“They should help flush out the skills and characteristics needed to lead the company into the future. Having the current CEO work with your recruiter in this task will be important so you can avoid looking for a clone and stay focused on the leadership necessary for the future. The family CEO/owner would also be a member of the nominating committee task force and therefore be involved in interviews and selection.”
As for making the final decision on a new CEO, Hudson recommends that a family company have a nominating committee task force that includes a couple of the lead family members.
“In practice, the way this works is that there is dialogue and transparency with the family, because as owners they elect the directors who would finally approve the selection of the new CEO.”
Red flags
The interview process also should be used to pinpoint signs that the candidate may not be the right fit. Radin says one of the hallmarks of a subpar CEO is poor listening skills. She also advises that interviewers look out for misalignment with values, the lack of a strong external focus and little enthusiasm for continuous learning.
A lack of transparency or tendency to evade difficult questions is one of Hudson’s top CEO no-gos, along with a poor track record of achieving results and inflexibility or unwillingness to adapt to changing business conditions.
Smooth onboarding essentials
Once the new CEO is identified, it is crucial for the board to help them off to a seamless start via a thorough onboarding.
“It’s critical to have a deliberately designed onboarding process, anticipating the first 90 days of the CEO being in the role, including what will be accomplished and shared with the board of directors at the end of that time,” says Radin.
Hudson stresses that the board has a major responsibility in ensuring that the new CEO is set up for success, including providing coaching and mentoring, making sure the CEO has a clear understanding of company culture and values, and offering regular check-ins and feedback on progress.
“If these steps are followed, boards and companies can help to ensure that their new CEO is able to hit the ground running and achieve success in their role.”