8 Questions to Answer Before Selecting a New CEO
Entrepreneur's New Year’s Guide
CEO succession planning is one of the most important functions of any organization. The board should consider the situation, company size, business model, the strength of the executive team and many other factors when hiring a new CEO.
Whether it is a planned succession or an unexpected need, here are eight questions to help build a foundation for recruiting and assessing CEO candidates. While there are many more questions to ask, these eight should provide a basis to shape your next CEO hiring process.
1. How big of a change is needed?
If big changes are needed, look outside the company for a new CEO. This person will likely bring objectivity and fresh ideas. If the existing CEO is doing great but decides to retire or must step down due to health issues, for instance, the board is probably looking for someone to continue with little change. In this case an internal candidate is the best choice, if possible.
2. How strong is the executive team?
The stronger the executive team, the more likely an inexperienced CEO can be successful. This is because it gives the new CEO more time to add value in his or her area of expertise while coming up to speed in other areas. With a weak executive staff, the CEO will have to provide value in multiple areas while hiring executives to improve the team. Being able to identify and hire top executives is not easy and experience helps.
3. How sophisticated are the company’s management systems?
It is one skill to operate a large business and a different skill to build a business. Executives from large companies may have never had to define new processes and roll out basic systems. If the company has all the data and systems to operate at a high level, then hiring a CEO from a similar sized or larger company may be a good choice. If systems still need to be built, then look for executives from small, fast-growing companies, who are often much more experienced with these kinds of issues.
4. What is the role of the board in the company?
If the board is very involved and augments the executive team in areas of strategy or budgeting, it is important to find a CEO who is comfortable with that relationship. He or she can focus more on operations while serving as a facilitator in the strategy area. If the board is very hands off and serves merely as a detached advisor, then the CEO will need to be reasonably good at strategy to be successful.
5. How international is the business?
Running a business that is primarily domestic is very different from a business that generates a majority of its revenue internationally. International businesses place greater and different demands on the CEO and the company as a whole. Businesses with a large international component should look for someone who has that experience and likes the challenge.
6. How is the product made?
Businesses that make highly technical widgets should look for someone with an engineering or related background. If the company offers people as its product, look for someone with consulting or services experience who knows how to build a great recruiting operation.
7. How does the customer buy?
The CEO needs to understand intuitively how the customer buys. Is the end customer a business or an individual consumer or maybe a government? Each buyer purchases in a very different manner. It is critical that the CEO has a fundamental feel for how the customer thinks when they are in the buying process.
8. What are the key competitive advantages of the business?
Look for a CEO who has expertise related to the competitive advantage of the business. For example, Intel should never hire a CEO who doesn’t fundamentally understand chip design. There are a million different ways that a company can differentiate itself. Any prospective CEO should appreciate the company’s specific competitive advantage.