CEO Search: Why They Should Come from the Center of the Business

by Jun 22, 2020Talent

Your Next CEO Search Should Come From the Center of the Business

At some point in the life cycle of every business, the topic of succession will come up. That might come when a CEO decides to move on to a new opportunity or maybe retire. It could also come when the founding entrepreneur decides to stop working in the company as CEO and get into the role of owning the company and they want to promote someone else into that role of CEO. The question then becomes: Where do you look for the best candidates to fill that role?

A default option many businesses turn to is to hire an executive recruiter to find an external candidate. The catch here is that the data says you have only a 50-50 shot at finding someone who is that perfect fit that sticks in the job. That means that you have a 50 percent chance of hiring someone who can wreak massive damage, potentially multiple millions of dollars worth, inside the business in just a short period of time if they aren’t that perfect fit to grow your organization.

That’s why you’ll actually have better odds of success by promoting someone already inside the company–if you can. The research says a proper hire from inside the business has an 80 percent probability of success. But where do you find that person?

1. Your Executive Team

When you take a look at your executive team, do you have several candidates who have the kind of ambition and desire to ascend into the position of CEO? Do they have the kind of cross-functional experience inside the organization, as well as mentoring from you and outside the organization, to succeed you?

Ideally, you want only two or three candidates to directly report to you whom you will consider for your succession plan. If you have too many, you’ll likely end up with a pro wrestling steel cage match in which those folks will battle each other to the end until only one of them is left standing.

2. Adding Candidates to the Pool

Do you have vice presidents who are what I call “blockers,” people who have been promoted into executive positions who actually might be blocking people with higher succession potential from rising inside the organization? You might consider these B, or even B-minus, players and you might need to make some hard decisions about them if you want to clear paths for others.

One option is to replace a blocker with someone from the inside or outside. This can be particularly successful if there is a very high potential candidate two layers down who is aching to show what they can do. I’ve seen this happen, and that newly promoted rock star will work like crazy to prove they belong. This has the side benefit of causing the rest of the executive team to step up their game.

If you don’t have a great candidate down the organization, then you can bring people in from the outside. The preferred approach is to add a person to your executive team with some cross-functional responsibility as a trial. If they perform at a high level, you can either grow them in place or replace one of the lower-performing executive team members. Just realize this approach has that same 50 percent probability of success, but with lower risk since they aren’t running the whole organization.

3. The Best Candidates Are in Critical Roles

When creating your succession inner circle of two or three candidates, where should you look inside the business? It turns out that the best candidates come from the core areas of the business, the center, which is where the value is created that your customers pay you for.

If you are a product sales company, for example, your sales team would be a place to mine for executive talent. If you are an innovation- or design-based company, you might look at engineering or your technical department. If you are a low-cost operator, you might look to your operations leader, or if you are in the business of lending money, you should look at your finance department for a viable successor. The point is you want to find a successor whose strength aligns with the center of your business.

You also need to consider this if you work inside the business and are thinking about your own long-term career goals. For example, I was coaching a young person, let’s call him Steve, who had studied electrical engineering as an undergrad and was now pursuing his MBA while working for a mechanical engineering product firm. In our discussions, I learned that Steve had big ambitions to someday run a company. The catch was that the center of his current employer did not align with his core skill: electrical engineering. That meant if he wanted to eventually put himself on a succession plan, he needed to find a company whose center aligned with his own, which is something Steve eventually did when he landed a job at an electronics company.

The lesson here is that when it comes to thinking about succession, look to build a plan around the members of your executive team with the talent and strengths that align with the center of your business. If you don’t have anyone who fits that description, then your succession plan is nothing but a dream.