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Leadership : The High Cost of Poor Executive Hiring Decisions

Posted by kevinb on 4/25/18 (520 reads)

One of the services that I frequently provide is helping companies evaluate C-level job candidates, for positions such as CEO, CFO, COO, CTO, Chief HR Officer, GM, and heads of sales and marketing. Typically, the candidates have been identified and vetted by an executive recruiter or by some other source, and I evaluate "final" candidates or those who otherwise are being seriously considered for the position.

It's likely that you have all seen the statistics about the high rates of failure (or at least disappointment and underwhelm) regarding executive hires or promotions and the enormous cost (both in terms of "real" money and of negative impacts on the company) associated with poor hires and transitions. Executive hiring decisions can have an enormous positive or negative impact, especially on small-to-medium-sized companies, and, not to over-dramatize, but I have seen nearly make-or-break types of outcomes at the company-level.

On that point, Elena Botelho, Shoma Chatterjee and Kim R. Powell have recently published the following article entitled Seemingly ‘Safe' People Bets That Can Trip Up CEOs. It is an interesting and insightful article which identifies common traps executives fall into when selecting team members and some ways to overcome them.

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Whether a first-time CEO or stepping into a visible leadership role, you will face a number of high stakes decisions during the critical first months of the role. Given the high risk of executive transition failures (estimated to be nearly 50% by some experts), you are understandably cautious.

For our book, the CEO Next Door, we analyzed 2,600 executive assessments conducted by our leadership advisory firm ghSMART to discover the essential behaviors strong CEOs share, and the unexpected lessons senior executives learn during their first year. We assumed their biggest challenges emanated from the myriad expectations of the Board, Wall Street analysts, investors, or employees. However, we learned that their primary regret was making seemingly safe people decisions that turned out to be anything but.

The Fearsome Five

Here are the most common safety traps executives fall into when selecting their team.

  1. Staying the course with the current team. While drinking from the proverbial firehose, keeping your existing leadership team in place seems like a safe harbor or at least a buoy until the storm settles, especially if the team gets along. However, one of the biggest regrets of the CEOs we interviewed is that they waited too long to make necessary changes and were met with huge financial, operational and cultural opportunity costs. You were likely chosen to lead the company or business unit because you articulated a vivid vision of the future to those who matter. A new firm strategy often requires a new (or at least revised) talent strategy.
  2. Making the political choice. At one company, the board of directors had a strong preference for retaining an executive who was passed over for the CEO role. To placate the board, the new CEO agreed to keep the executive in his role. Nine months later, investment analysts took note of his division's lagging market share and growth. The division leader's lack of investment in the business, coupled with his disappointment over the CEO succession, put at risk the CEO's larger roadmap for the company.
  3. Choosing shiny credentials. Early in his tenure, one of our CEO clients was proudest of his ability to recruit a business unit president who graduated from Harvard Business School with impressive stints at a top strategy consulting firm and a Silicon Valley juggernaut. While the individual was impressive, the job required deep supply chain experience, an ability to gel with union leaders across the Midwest, and a player/coach mindset. Unfortunately, this individual didn't bring those capabilities to the table and only lasted in the role for two months. The person with the best resume may not be the right one.
  4. Picking the devil you know. To expedite hiring, many leaders default to former colleagues or acquaintances whose development areas are familiar. After all, if you know where the issues are, you can put band-aids over them. But at the C-level, this is an expensive proposition. Every minute you spend mitigating this individual's development areas(s) takes you away from other critical work. While no candidate is perfect, don't let fear drive you to settling on the wrong candidates.
  5. Generating your clone. Managers, often subconsciously, hire team members who mirror their own attributes, making it easier to form trusted relationships. However, a number of researchers provide evidence that while diverse teams take more time and effort to gel, their performance outstrips more homogeneous teams. The best ideas come from constructive debate between those who think expansively and differently. Strive for diversity of thought, background, and style.

Overcoming the Trap of False Safety in Hiring Decisions

We do not suggest taking on excessive risk or making callous hiring decisions. In fact, the human brain's desire for safety (and instinct to fight, freeze, or flee) exists for good reason - to avoid rash decisions in high stress situations.

Here are a few ways we have seen executives keep the fear in check and make hiring decisions that fuel high performance:

Start with an objective role scorecard. Job descriptions tend to be flowery and exhaustive lists of activities and competencies. Instead, focus on creating a scorecard of what the executive and organization must achieve over the next 3 years. Ask yourself, What are the 5-7 lynchpin outcomes this person must achieve? Make them as tangible and measurable as possible: "Raise EBITDA by 20% over the next two years while expanding market share by 10% in Eastern Europe." A second key question is: What are the needed pivots?  Noted CEO succession scholar Ram Charan describes a pivot as two or three critical capabilities required for the new leader to be an indisputable success. In other words, the pivot is what separates an average or good performer from an exceptional one. For example, when considering an executive candidate for a consumer retail company, they should be well versed on digital innovations, end-to-end customer experience, and streamlined logistics to compete in a landscape dominated by Amazon.

Creating the role scorecard should be an inclusive process, comprised of interviews with board members and trusted team members. It is a tool for alignment and objective assessment before specific candidates are discussed and helps you influence the board's opinions on a candidate. More importantly, you are role-modeling and telegraphing the importance of talent decisions to the company.

Prioritize human capital due diligence. You wouldn't acquire a new company without the essential due diligence; acquiring talent requires the same rigor. Take advantage of the advances in executive assessment built on decades of behavioral economics and psychology, which coupled with data analytics, can significantly raise the rate of hiring success. Also, check references beyond the "approved friends and family list." Ideally, contact seven people for every key hiring decision: Two bosses, two peers, two subordinates, one outsider (e.g. customer or business partner).

Consult a friend or colleague who's been in your situation before. When we work with CEOs who say they are putting hiring on pause for one of the reasons above, we typically introduce them to CEOs who have been through similar dilemmas. They soon conclude that growth is all about hiring the people who can give you momentum and leverage, leaving you with more time and energy to pursue your bold vision for the company.

While it may be time consuming to establish a high caliber team upfront, it will result in a big payoff once right. Avoid safety traps and use a rigorous, data-driven process to select A player talent who will have outsized impact on your team.

View this article online here.

 


Tags: executive hiring

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