Selecting a CEO

Selecting and appointing a CEO is one of the most important tasks directors may undertake during their term of office. Choosing the right person is critical to the success of the organisation. Nichola Clark identifies the qualities that are likely to make an outstanding CEO.

Appointing the right CEO

You don’t have to look far into corporate history to find dramatic reminders of how a CEO can get things terribly wrong. Try the collapse of HIH Insurance and Enron for starters, and Sunbeam’s narrow escape with CEO Al ‘Chainsaw’ Dunlap. Hired for his profit-slash-and-burn-style, Dunlap was appointed CEO of Sunbeam in 1996 and the share price jumped by 50 per cent. Just two years later he theatrically fell from grace after being exposed for fraud and drove Sunbeam into near bankruptcy.

At the opposite end of the hall of fame are the CEO legends such as Jack Welch, who over two decades increased GE’s market value by $US400 billion. Not forgetting our own homegrown Michael Chaney, who took Wesfarmers from a $1 billion rural-dominated business to an $11 billion plus hardware, energy, chemical and insurance giant.

What qualities did Welch and Chaney have that made them extraordinarily successful in their respective fields. Is there a certain CEO ‘X factor’ or is there a recipe for what makes a good CEO?

Dean Ireland, consultant with Egon Zehnder International and former GE employee, is quick to reply. “Integrity has to be the number one criteria. If there’s any question mark it can destroy an organisation.” The other crucial factor he says is resilience. “No matter what the organisation, a CEO needs to be able to take the blows and keep on smiling.”

Besides integrity and resilience, Ireland explains that Egon Zehnder looks for four core competencies in a CEO. The first he says is strategic thinking: “It’s critical that a CEO is able to shape a strategy for a company or industry.”

The second core competency is to ‘deliver the results’. “There’s an artform to this,” he says. “There are people who are very good strategists but they don’t know how to deliver the results. There has to be a balance. You can’t deliver the short term if you don’t have a long term view. Similarly if you don’t have a long term view the short term is going to dry up.”

The third essential skill for a CEO is team leadership. Ireland says: “Many CEOs tell people what to do. The really, really good ones can motivate a team and display the ability that you don’t regularly see in a CEO – the ability to listen.”

The fourth and final criteria on the Egon Zehnder ‘musts’ list is ‘collaboration and influencing’. “This is the ability to establish a collaborative culture in the organisation... It’s been proven many times over that groups are far more effective than individuals.”

Jennie Cameron is chair of National SIDS Council of Australia (SIDS and Kids), the organisation committed to saving babies through the elimination of sudden and unexpected infant deaths. Adding a chairman’s perspective Cameron says: “A good CEO knows their own strengths… They need to be inclusive, a leader, a decision maker. They need to give clear directions, have strong communication skills and a good measure of emotional intelligence. They also need to have a good sense of humour – that’s paramount!”

Mike O’Neill is the chief executive of The Executive Connection (TEC), the membership organisation dedicated to increasing the effectiveness of chief executives. O’Neill sees the role of a chief executive as three dimensional. “Firstly you have to understand what the role is, secondly you have to create the mindset for people to follow (the culture), and thirdly you have to lead by delivery.”

In explaining the first dimension – ‘understanding the role’ – O’Neill says there are three components. “As a CEO you are the chief strategist, chief team builder and chief sales officer. In any one day you need to cover each of those aspects and do it well. So often I see CEOs that are great at strategy but lousy at team building, or great at team building but lousy at selling. They can’t afford to be, they must be good in each of those spaces.”

To achieve the second dimension – ‘creating the mindset’ – O’Neill says it is essential that the CEO is passionate, committed in the long term, and alert to the marketplace. “At the same time, you have to be enjoying what you do. It’s very important you’re out there talking to your team, suppliers, stakeholders and customers, and that they know that you’re passionate and committed. They also need to know you are listening to them and responding to them.”

The third dimension is ‘leading by delivery’. “A CEO is going to make decisions either strongly independently or strongly with the team on their side – they can’t be fazed by it. They are going to have to make tough decisions and one of those tough decisions may be backing out of a decision. A sign of a great leader is someone who can stand up and say we stayed the course, we had to revise it and we had to reverse out of it.

“And finally within the delivery, all too often you see people grab the latest buzz word or activity. To be a leader you need to continually test the boundaries of the industry and the team and break from the pack.”

In describing the essential CEO qualities, Ireland, Cameron and O’Neill all emphasise the crucial ability to be able to lead. So what exactly is the difference between management and leadership?

In defining leadership, Jack Welch used to talk about the ‘Four Es of Leadership’ These are:

• Energy – having personal energy
• Energise – transferring that energy to your team or board
• Edge – making the hard strategic and people decisions
• Execute – executing those decisions.

As to the difference between management and leadership Ireland says: “A management approach is very short term focused, and a leadership approach encapsulates the shorter term and longer term.”

O’Neill believes that managing is simply doing something by formula and process. “Management is very important but it comes at all levels. A receptionist for instance is a manager in the sense that they manage the person that comes in through the door. Leadership, however, is something unique. It’s taking those abstract decisions and trying something new, determining what’s happening in the market and looking at how to modify it. It’s about being at the front of the pack.”

Cameron shares a similar view and believes the difference is “doing things right compared to doing the right things.” She expands: “A manager may be doing things right but not necessarily at a visionary level. A leader is visionary. They choose the right things to do at the right time for the organisation’s life cycle which is critical. A leader also brings people with them. You can’t lead by yourself.”

A great example of a leader Cameron highlights is the late Kaarene Fitzgerald AC, former CEO of SIDS Victoria. “She was a very dynamic and inspirational leader, and was passionate about what she did and persevered. She turned SIDS and Kids into a very successful organisation... She built relationships with researchers and medical organisations across the world and in Australia lobbied governments and the medical profession…As a result her passion has contributed to an 85 per cent reduction in SIDS over the last 20 years representing 5,500 saved lives.”

Does the CEO of a not-for-profit need to have different skills to a CEO of a large corporate? Cameron believes the same rules apply but a CEO of a not-for-profit needs that ‘something extra’. “Many not-for-profits have to make a transition from a more volunteer based first cycle into a necessary cycle of corporate governance. To make that transition without losing the passion is a real art form.”

Ireland adds that the four core competencies: results, strategy, team leadership and collaboration are essential to all CEOs but the major difference is fundraising. “It’s a completely different skill and one that a CEO of a not-for-profit needs to get heavily involved in. Another element is volunteerism, a CEO has to be able to inspire people to volunteer,” he says. “All good CEOs need to believe in the cause, but for a not-for-profit it’s even more important.”

So if a CEO has all the core competencies, does that necessarily mean they will be good fit for a particular organisation? Ireland, Cameron and O’Neill all say it’s not that simple. When choosing the right CEO it is critical that the board selects the right person for the right role at the right time.

O’Neill says: “The board really needs to determine the direction the company is going in. They may need a turn around specialist for two or three years, or someone to break from a past mould and take the organisation somewhere new…or someone with strong marketing skills because the organisation is bereft of new ideas. The board really needs to look at what they want to achieve with the appointment and then go out and hire the best person they can.”

O’Neill gives the example of Solomon Trujillo, the CEO hired by Telstra last year. “Clearly the board made the right decision. They needed someone who was going to come into town with a gun on their hip, shoot left right and centre, be prepared to take the flack and at the end of the battle put their gun back in the holster and leave town. No Australian could do that.”

Once a CEO is selected and in position, how can a board go about measuring their performance? Ireland says: “A board needs to work closely with the CEO with short term and long term goals – both tangible such as profit and sales and intangible such as the culture and the quality of the team.” Apart from measuring key performance indicators (KPIs) from the strategic plan, Cameron says it is also important to measure performance informally. “You may be able to tick the KPIs but if staff are leaving something may be amiss. You need to listen to what’s going on.”

O’Neill adds that it’s important to make sure you are measuring the right things. “It comes back to what the board wants to achieve through the appointment – it could be financial, customer satisfaction, or team related... If it is purely bottom line I’d be asking about the strategy–because Al Dunlap at Sunbeam proved that the result is not sustainable if you don’t have a strategy for the future.”

How can the board improve and sustain the performance of their CEO? Ireland says it’s all about feedback. “A board should be looking at regular feedback and how they can contribute to the agenda.” Cameron adds: “A new CEO needs to be supported and advised. At the same time the board needs to be very supportive of their decisions.” O’Neill agrees that at the end of the day the board must support the CEO. “That’s what you see with Telstra and Solomon Trujillo – the board has supported him.”

Besides the support of the board, the relationship between the CEO and chairman is vital to success. Ireland says the most important thing a chairman ever has to do is make the decision on the CEO.

As an analogy, O’Neill draws on the development of a formidable partnership between two batsmen in cricket. “What I call the formidable partnership in business is between the chief executive officer and the chairman of the board. A great example is the formidable partnership between Geoff Dixon, CEO Qantas and Qantas chairman Margaret Jackson. They work so well together – they have realised their strengths and deliver as a formidable team to the media, shareholders, unions or customers when they need to.”

But as Cameron warns: “The chairman and CEO need to get on well and be in sync with each other. But they also have to have a relationship that doesn’t get too close – that can be a problem also.”

With a strong chairman and CEO partnership, the core CEO competencies, the right choice of CEO for the organisation at the time and board support you have the essential ingredients to making a ‘good CEO’. But what is it that makes an outstanding CEO – the Jack Welchs and the Michael Chaneys of this world?

O’Neill begins: “A good CEO is somebody who gets the incremental increase each year in the bottom line and manages what they need to do. That comes back to process. An exceptional CEO is one who challenges the paradigm and works with all the resources available to them to deliver outstanding results. That may mean revenues going up and investments pulling the bottom line back, but it’s not about the next three months or tonight’s TV announcements saying share prices have fallen back. It’s looking at the long term and where you’re going to see share prices double or quadruple.”

Ireland says: “It’s around people – it’s their ability to be able to motivate people that’s the difference. No CEO can do the job by himself so if they can select people who understand the growth plan and can perpetuate it then you will have an outstanding CEO.”

Cameron concludes: “An outstanding CEO is inspirational and can paint a vision of what can be and can convey it to staff so it leads to desired results. If people come into work thinking they can fly – that’s a good thing.”

Nichola Clark is the founder of Ara Communications, a communications agency specialising in business writing and editing services. She has considerable experience in both the UK and Australia and works with a broad range of clients from the corporate, government, consumer and not-for-profit sectors.