The success criteria for today's corporate leaders are shifting. Executives no longer have the time necessary to develop the leadership skills for long-term success. A highly competitive marketplace that moves at lightning speed has replaced the days of legacy building — an era associated with the soaring successes of the steel industry or the heyday of the blue-chip company. This need for speed means that companies and shareholders are less forgiving of CEOs than they once were. In the days of blue-chip glory, the forgiving nature of corporate boards meant that a CEO was capable of seeing a corporation through its various life cycles. Today, the CEO high-wire act is far more value-driven, squeezing executive priorities and leaving little room for error.
As this CEO "high-wire" gets even higher and grows even more tenuous, corporate leaders are increasingly seeking roles outside of the public eye, or taking their companies private. Indeed, research shows that the average tenure of the CEO has declined, proving that long-term leadership may be an outdated standard. The Conference Board's 2012 CEO Succession Practices study recently found that the average tenure of a departing CEO has declined from 10 years in 2000 to 8.4 years in 2011. Yes, shareholder scrutiny means that boards are more inclined to dismiss under-performing CEOs. Yet CEOs are also choosing to depart on their own terms — to leave the high-wire before they are shaken from it. This makes the act of building — be it a legacy, a new product, or a corporate structure — far more difficult than it once was. This shift impacts today's organizations and leaders in three particular ways.
1. "Renovators" are replacing "builders." Declining tenures and a more competitive marketplace mean that leadership is more situational than ever. Fewer CEOs are capable of building a company from the ground up and seeing it through its various life cycles. Today, it is the turnaround artists who are lauded, while the concept of an emblematic corporate leader becomes less of a reality. The "renovator" CEO, someone who can step in and make the repairs necessary for success and shareholder satisfaction, is replacing the "builder" CEO.
While great builders are certainly not obsolete (think Jeff Bezos of Amazon or Warren Buffett of Berkshire Hathaway), the former leaders we often associate with building great corporate legacies — CEOs like Lee Iacocca of Chrysler or Andy Grove of Intel — are far and few between in today's marketplace. Meg Whitman's appointment as CEO of Hewlett-Packard and Marissa Mayer's appointment as CEO of Yahoo are emblematic of this shift from builder to renovator CEOs.
2. More companies are hiring external talent. When companies lose the building mindset, they also lose sight of the kind of leader that will best fit with company goals, strategy, and culture. This has led to a dramatic increase in external hires. In 2011, 19.2 percent of S&P 500 CEO successions involved an outside hire, a dramatic increase from just 8.3 percent in the 1970s.
Although it has been repeatedly proven that inside hires outperform outside hires, shareholder pressure and the allure of the turnaround expert mean that companies often make hasty succession decisions that undervalue "fit." Any CEO candidate can have a sterling resume, but it is fit that will set a great CEO apart. Companies need someone who understands the future needs of the organization and the way it operates currently, both from a strategic standpoint and a cultural one. As companies lose sight of this, performance will suffer and CEO turnover will increase.
3. Senior team relationships are changing. The shift in CEO criteria ultimately affects how leaders interact with management and other top team members. Interpersonal relationships have shifted dramatically in recent years as CEOs build a different kind of team, based on relationships that are far more transactional. While close bonds certainly do still exist, they are no longer a necessary component of corporate life.
Every chief executive I have worked with tells me in one way or another that no one can truly anticipate the high-wire act that comes with leading a company. To be sure, the pressures CEOs face today are quite different than they were ten to 15 years ago. CEOs must be aware of the impact of these pressures in order to better meet and manage the changing expectations for success.
Full Story at Thomas J. Saporito