SPEAKERS: Nancy M. Dahl, lead independent director, Knutson Construction; Ana Dutra, director, Lifespace Communities, ELJ, EIS and Jelmar; Jill Gardner, fifth-generation owner and family president, Laird Norton Company; Silvana Nuzzo, principal, Pay Governance
NUZZO: Before searching for CEO candidates, what should boards discuss first?
DAHL: I think that’s a really great question because people want to jump right into the search. They ask, “What skills do we need?” or “What do we want to accomplish?” But the most important step is alignment.
I’m leading a CEO search committee right now, and the alignment discussion is what I call the “not very sexy” work of finding a CEO. It’s having an honest conversation about where the company really is today. Let’s agree on our current reality. What issues are we facing? What have we learned? What does the future look like?
It’s amazing how often everyone thinks they’re aligned until those conversations begin. Family members, directors and senior leaders all describe the future differently.
Then you have to define your strategic center. What are the principles that will guide future decisions? Things are changing so quickly that you need to know what you’ll continually come back to.
The second discussion is about your current CEO. What has this leader done exceptionally well? What could be done differently? Where are the gaps between today’s leadership and tomorrow’s strategy?
Often, CEOs do certain things so well that boards stop noticing them. You take those strengths for granted, so they never make it into the leadership profile for the next CEO. That’s a mistake.
Only then should you define the future leader. What are the nonnegotiables? What experience, results and strategic capabilities are required? And what about fit? Fit isn’t just culture. It’s leadership style, motivation, lifestyle and curiosity. Are they curious enough about your business to keep learning and growing with it over the long term?
NUZZO: How should boards think about internal versus external CEO candidates?
GARDNER: Statistically, internal candidates fail about half as often during their first three years as external CEOs. That doesn’t mean the answer is always to choose an internal candidate, but it should be part of the conversation.
Our board spent a lot of time determining which direction makes sense. Often, you’re evaluating both at the same time and weighing the strengths of each.
DUTRA: CEO succession should never become an event that starts when something goes wrong or when the CEO announces a retirement.
If the board isn’t having ongoing conversations about succession, it’s already behind.
Every year — if not every board meeting — you should understand what talent you have internally. Who is ready now? Who could be ready in three or five years? What development opportunities do those leaders need?
At the same time, it is crucial for directors to understand what kind of talent is available in the external market. Even if the board is not actively conducting a search, map the outside talent. If we had to go outside the company to recruit a new CEO today, who would we pursue? How do those candidates compare with our internal potential successors?
Remember, you’re never comparing apples to apples. Internal candidates are known quantities. External candidates always look a little shinier because you know less about them.
And don’t wait until a CEO departure is imminent. Several years ago, in one of the companies on whose board I serve as the nom/gov committee chair, we hired a new CEO and six months later asked him to begin identifying successors. That wasn’t because we were unhappy. He’s still our CEO today. Succession planning is simply part of the job.
NUZZO: What makes CEO selection more challenging in family businesses?
GARDNER: One challenge that may be neglected is preparing the family, not just preparing the CEO.
When we hired our first nonfamily CEO, we didn’t spend enough time preparing the family for the change. Later, we realized that what we really needed was an outside CEO who could connect with the family without being absorbed by the family’s anxiety. Family systems typically have some emotional tension within them.
In our company, my role exists partly so I can absorb many of those family issues. With roughly 550 family members, there are always people who have opinions about the business and emotions about the way decisions are made. The CEO shouldn’t have to manage all of that.
The board must clarify decision-making authority. That’s one of its most important responsibilities.
DUTRA: In one family company, we intentionally hired someone with deep human capital experience as the first “non-family member” CEO because he understood family dynamics so well. He was tremendously successful and stayed for 11 years. During those 11 years, that CEO was incredibly successful. However, he never developed a successor. The family became so attached to him that the transition to the next CEO became much more difficult.
NUZZO: How can boards improve their CEO evaluation process?
DUTRA: Resumes are important, but they’re not enough. You can have candidates with perfect resumes who simply aren’t the right leaders for that particular organization.
I’m a big believer in objective assessment instruments. In addition to making the evaluation process more objective and less biased, they help boards understand a candidate’s motives, values and work preferences. Sometimes attracting a CEO isn’t about paying more money. They may value independence, influence or simply having a genuine seat at the table.
Perform a real multifaceted due diligence. Today, there are very few excuses for not understanding how someone has behaved professionally throughout his or her career as a leader.
DAHL: Your interview process needs multiple stages. Spend time with candidates in different settings. Take them to dinner. Meet their spouse. Visit customers. Walk them through the plant. Watch how they treat employees. Ask your receptionist how they interacted. Don’t rush.
If you’re hiring someone you hope will lead your company for the next decade, don’t make that decision after one impressive interview. Put candidates in different situations where they become comfortable enough that their authentic leadership style begins to emerge.
DUTRA: I also like asking finalists to present a 30-, 60- and 90-day plan. Give them enough information about the company and see how they think. What questions do they ask? How would they respond to different scenarios? That tells you a great deal about how they’ll actually lead.
NUZZO: Once the CEO is hired, what role should the board play?
DAHL: The work isn’t over once the offer is accepted. Quite frankly, that’s when the hard work begins. Be intentional about onboarding. Introduce the people. Explain how the business makes money. Walk through the company’s history, strategy and financial story. Don’t assume they’ll figure it out.
In family businesses especially, help them understand the family itself. Explain the culture, the expectations and the governance structure.
Give direct feedback. Avoid micromanagement, but don’t leave people guessing.
One CEO we onboarded spent the first week focused entirely on people. The second week focused on the business. Only then did we move into strategy. We planned the calendar carefully because we didn’t want success left to chance.
GARDNER: Boards also need to understand where a CEO’s natural strengths lie. Some leaders are stronger operationally. Others are stronger at business development.
Both skills matter but knowing where your CEO’s strengths lie helps the board provide better support during the transition.
DUTRA: Don’t throw away everything you learned during the search process. Use those assessments and observations to more effectively and productively onboard new CEOs. Give the CEO honest feedback about strengths, blind spots, development opportunities and potential pitfalls with key stakeholders in the business. I also like offering an executive coach at least for the onboarding period. Not because something is wrong, but because it gives the CEO a confidential sounding board during one of the most challenging transitions of his or her career. That’s one of the best ways a board can accelerate a new CEO’s success.