In the corporate world, the revolving door for CEOs is constantly spinning. You see the same thing with coaches in any sport, whether it be soccer, the NBA or college football. And, change can be good. But too much change is frustrating, not to mention disruptive and often counter-productive.
Why, then, are sports fans and company shareholders alike often anxious to replace their incumbent CEO? The answer lies in the fact that a change at the top is the fastest way to modify, or even reset, an organization’s contract. Which contract? The culture-defining contract that exists between the organization and its employees.
An organization’s success is built on that contract, and the organization’s chief executive officer is primarily responsible for building, maintaining and modifying the contract. In fact, these actions constitute item No. 1 on a CEO's job description, and it’s the one aspect of his or her duties that cannot be overlooked.
The contract is built on the unique relationships that exist between the organization and its employees. Some of those relationships are explicit (e.g., you work these many hours and the organization will you pay you for your services). Yet, like an iceberg, the explicit agreements communicate only a small portion of the story.
Like the shelf of ice hidden underwater, it’s the implicit, psychological, agreements that represent the bulk of an organization’s contract. And when this contract is correctly built and managed, it is foundational for creating great products, values, customer experiences and returns.
Hopefully, it's self-evident that it’s risky to hand over this crucial obligation to someone who is new, let alone an outsider. Yet, when the wheels start coming off the bus, our instinct may tell us that something is wrong with the contract. And, instead of taking the time to diagnose and find the source of the problems, our knee-jerk reaction will be to place the blame on the CEO’s abilities and look for someone new to manage the contract -- in short a whole new contract and someone who is the shiny new thing.
But, is an outsider always the right decision? Sure, there are notable success stories. Steve Jobs’ second tenure at Apple immediately comes to mind. And Nick Saban, the American college football coach who led his team to three national titles, is a demigod in the state of Alabama. The problem is that success stories like these are outliers. They’re not the norm. It's just that the popular media have made them a story, reinforcing the public’s belief that outsiders are good.
Likewise, looking for a new CEO, coach or leader can be neurologically rewarding. Participants experience the thrill of the hunt, secure in their belief that the next “big one” is right around the corner. Endorphins are everywhere. The potential rewards seem enormous.
Yet, statistical averages tell us otherwise. Remember that most of us are average, and, by definition, half of us work for businesses that are underperforming. Why do we expect the list of game-changing leaders to be long enough to save all the companies that need help? There simply aren’t that many Phil Jacksons (the professional basketball exec and former player and coach) to save every team in the NBA.
So, while choosing the right leader may be the shortest path to success, a CEO change is no guarantee of success. Consider Marissa Mayer’s tenure at Yahoo. Most believed the “wunderkind” from Google would save the tech giant’s future, given her executive-level Google pedigree. Mayer's scorecard, however, is incomplete, and there are signs that Yahoo still lacks focus and discipline.
Patience, meanwhile, receives more lip service than practice. And, shareholders, analysts, and boards of directors -- absorbed with the hype and intrigue of a new CEO -- may be reticent to give the newcomer the time he or she needs to tweak, or even rebuild, the company’s contract.
When deciding on the best candidate as your next CEO, then, consider that an outsider may be at an immediate disadvantage. Expectations will already be too high. And a newcomer may not be afforded the time frame required to understand and define the changes that need to be made to the organization’s contract.
Second, an outsider may be set in his or her ways and too beholden to what worked at predecessor companies (i.e., forcing a square peg into a round hole).
Third, statistics will rear an ugly head and give you a candidate who is no better suited to the task than the three or four internal candidates available (who also may have already developed a turnaround plan through an in-depth knowledge of the organization).
For all these reasons, extra care should be taken for selecting an outsider. An outsider can be a success, of course: General Motor’s insider, Mary Barra, who has been with General Motors since she started there as a co-op student at 18, has been praised for how she dealt with GM’s ignition scandal (and many have suggested that Volkswagen should follow her lead in its handling of its emissions quagmire).
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So, success can come from both the outside and the inside. But, before the allure and appeal of an outsider clouds all judgment, don't overlook what may very well be right within the walls of your organization. Because an outsider may well carry a good deal of risk. And it’s precisely that risk that many companies overlook in their quest for the next organizational hero.