The high turnover of CEOs in the United States affects huge numbers of other executives. At the current rate, almost 50 per cent of the largest American firms will have a new CEO within the next four years. Another 25,000 newly acquired companies will also report to new leaders. If you're a senior team member in a firm with a new chief executive, your career now depends on the views of a person you may not know. What's more, your history of successes may not count for much. "Remember that you are starting over," says the internally appointed CEO of a top-10 United States insurance company. "No matter what your track record was – hey, it's different now." Anecdotal stories of what happens to executive teams during CEO transitions are hardly comforting. Firings, organisational reshuffles and cancelled strategies result in abrupt and unwelcome career changes for a host of senior managers. If you're faced with a new CEO, three questions probably loom very large in your mind: How worried should I be? What will happen to me if I do get pushed out? If I stay on, what should I do to maximise the chances of prospering with my new boss?
To answer these questions, we built databases compiling rates of CEO and other high-level executive turnover from 2002 to 2004 at the top 1000 US companies, as determined by their market cap at the end of 2001. We also investigated the most recently reported employment status of executives who had left companies with new CEOs during that time. In addition, we interviewed more than a dozen CEOs who had taken over at least one very large company. Because of the nature of our research, the results we compiled are not absolute. By studying several constellations of data, however, we were able to make inferences about the effects of CEO turnover on executives.
One conclusion, in particular, is striking: Chances are high that executives will find themselves out the door. They're more likely than not to land in a lower position at a new company, to work in a much smaller firm or to retire altogether. Despite this grim picture, our interviews with CEOs revealed steps you can take to survive and even thrive, depending on how you behave in the first few days, weeks, and months of the new leader's tenure. Taken to heart, this practical advice may help you stay on board.
The fate of executives
To see what happens when a new chief executive takes over, we examined the turnover rates of proxy-level managers and other senior leaders in firms that maintained the status quo, promoted someone to CEO from within the company or hired a new CEO from outside the company. We'll start with proxy-level executives.
First, we looked at companies where the CEO remained constant. Proxy-level senior management turnover under those circumstances had a weighted average of 16 per cent annually. Roughly half (about 8.5 per cent) was voluntary, consisting of people who retired or who faced health or family issues, and that rate appeared to be unaffected by the company's performance. More important is the rate of involuntary turnover, including firings and unplanned early retirements. This averaged about 7.5 per cent overall, with slight differences depending on how well the company was performing.
Next, we looked at the turnover rates for companies in which an internal executive had moved up the corporate ladder to the top spot. In such cases, the news was generally bad: The rate of involuntary turnover jumped up to 12.5 per cent– an increase of about 65 per cent. When we included voluntary turnover as well, the chances of a senior executive's leaving grew to more than one in five.
Then we considered cases in which the new CEO came from outside the company, which generally happens only in midperforming and low-performing firms (high-performing companies almost never replace their CEOs with outsiders). Here, the story gets much worse: Involuntary turnover averaged a whopping 26 per cent– almost four times the rate when the CEO did not change. A further breakdown revealed the involuntary turnover rate at companies with average performance was 24 per cent, while the rate at poorly performing companies was 31 per cent. Thus, overall, if you are listed in the proxy statement and your company brings in an outside CEO after a year of subpar performance, you have about a two in five chance of leaving your job.
What about other senior executives? The pattern for them was very similar to that for proxy-level executives but slightly less worrisome. On average, turnover among all executive officers rose only a little when the new CEO came from within the company but quite a lot when the CEO came from outside. In the latter situation, more than 25 per cent left within a year and the odds of an involuntary departure more than doubled
What happens to executives who leave? Is losing their job, as the cliche goes, "the best thing that ever happened to them"? Do they in fact land on their feet or do they suffer massive career setbacks?
An executive who has been doing a good job may assume even if he is asked to leave, he will find an equal or better job elsewhere and so may tend to be relaxed about his fate under the new leader. Unfortunately, the data does not support this optimistic outlook. Of the approximately 400 proxy-level executives who left following the arrival of a new CEO in 2002 or 2003, none moved to a proxy-level job in any large United States firm. (To be fair, very few proxy-level executives who departed a company where the CEO remained constant found comparable jobs elsewhere either – but that's cold comfort.)
The broader group of exiting executives generally fared poorly, too. We discovered this by comparing their previous companies and job titles with their new ones. We separated the executives into four categories – winners, laterals, setbacks, and dropouts – based on the combination of changes in their titles and the size of their employers. For example, a person who acquired a higher title at a slightly smaller firm might be classified as a lateral, but someone who accepted a lesser title at a much smaller firm would be classified as a setback.
Once again, the results are sobering. Winners were rare – only four per cent of executives fell into this category. Twenty-eight percent fell into the laterals category (we gave ormer executives now serving exclusively as board members – almost a third of the laterals – the benefit of the doubt). Three percent were designated setbacks. Fully 65 per cent – the dropouts – moved to sole proprietorships or companies with sales of less than $10 million (22 per cent) or disappeared from our source databases altogether (43 per cent). It seems likely that this last group either retired or moved quite far down the corporate ladder.
Younger executives may be tempted to believe they stand a better chance of surviving than those closer to retirement age. Unfortunately, this is not the case. The overall pattern of success and failure for executives under the age of 52 is strikingly similar to that of their older colleagues.
Given these outcomes, it's clear that you would do well to try to keep your job under the new CEO – after all, you have nothing to lose. Your survival, however, may depend on whether you take the steps described below.
How to survive
Every new CEO makes people decisions quickly: On average, the ones we interviewed said they had made final determinations about their teams within 60 days, even when they had publicly vowed to take their time. The statement of one well-known CEO at a $10 billion services company, for example, is typical. When asked at his initial press conference whether there would be changes at the top, he replied that each member is valuable until proven otherwise and that making such a decision always takes a long time. Also typical is what occurred about a month later: He fired the CFO, who had put in a less-than-stellar appearance at an analysts' meeting.
Early impressions count – more than you know or maybe believe they should. New CEOs don't tend to seek input from their predecessors and they place little weight on the input they do receive. Rather, they rely on their instincts. Since it's relatively rare for a board of directors to restrict a CEO's ability to change the management team, the impression you create with your new boss is critical.
Assuming that no force majeure exists to make your exit inevitable – for example, you're the CFO and the new leader brings along her own financial officer – how can you make a good first impression and maximise your chances of survival and success? We asked our CEO interviewees to look back on the earliest days of their new jobs and recall instances in which an executive's actions or behaviour determined his or her fate. Did the executive do something to turn a negative impression into a positive one? Alternatively, did an otherwise good executive do – or fail to do – something that brought about his or her own downfall? We summarise their recommendations below.
Show your goodwill. It may be tempting to wait and see what the new CEO wants of you instead of taking the initiative to talk about your responsibilities, but this is the wrong approach. Most of the CEOs we interviewed indicated that too many executives doomed themselves from the start simply by failing to manifest a willingness to be part of the new team. As the chief executive of a $20 billion industrial company put it, "Managers do not realise how much the CEO is looking for teammates on day one. I am amased at how few people come through the door and say, ‘I want to help’.
I may not be perfect, but I buy into your vision.' That alone makes a huge difference." Another CEO was even more frank: "Virtually no one came to see me to ask how they could help. It is naive and stupid for managers to hold back and be guarded."
It is also dangerous to assume that your new CEO already understands that you want to cooperate. According to our interviewees, the exiting executives who opposed the new CEO's programme never once announced their opposition – so the leaders certainly did not equate silence with agreement. In the absence of strong signals, CEOs draw their own conclusions about your views. If those conclusions are negative, their responses can be harsh. "It was clear to me," the head of a $25 billion firm told us, "that the top executives of one of my largest divisions wanted no part of the new way of doing things at the company. They thought they could simply wait this out." He replaced every one of them within a year.
The consensus of our chief executives was clear. If you decide you want to stay, let the CEO know, proactively and without being sycophantic, that you want to be on the team and follow up with actions that demonstrate your willingness to go along with the programme. This is particularly important when the new leader has won an internal "horse race" and you were previously associated with a different candidate.
In such a case, it is imperative to explicitly acknowledge that you accept the board's decision and show a constructive attitude. As the winner of an internal competition at a bank with $100 billion in assets put it, "It would only be normal for a new CEO to be a little suspicious of people from other camps. So you must make a gesture – at least congratulate him – and follow up with action. You would be surprised how few people even do that."
Leave your baggage at the door
One CEO of a $3 billion industrial conglomerate offered a list of specific don'ts: "Don't talk about [your compensation], even if you think you were grossly mistreated by the CEO's predecessor. That is not what he wants to deal with yet. Don't talk about your own long-term plans at the company, because your new boss hasn't decided whether you still have a career there yet. Don't raise issues about long-term difficulties you are having with other executives. He does not want to be cornered into choosing one side or the other until he decides what is needed." There will be time for all these things later, he added. "Right now, the CEO will not appreciate your thrusting your own agenda ahead of his, in any form."
Interestingly, our CEOs were adamant that executives should counsel their spouses – of either gender – to be scrupulously politic as well. Anything negative your spouse says is considered to be an unguardedly accurate reflection of your true views; and given the closeness of executive social circles, gossip about your dissatisfaction with the company can easily filter back to the CEO or the board. This, our interviewees agreed, is the kiss of death.
Study the CEO's working style. Our interviewees also told us that they wanted their direct reports to be sensitive to their working style and then match it. Because it can be difficult to discern your new boss's proclivities simply by observation, it pays to ask about them specifically. One CEO recalled a meeting with a plainspoken executive who company gossips predicted would be an early casualty of the new regime. "He told me he had a reputation for being blunt and then asked how I wanted him to disagree with me," the CEO told us. "I wasn't sure what he meant at first, but he went on to explain: What kind of facts cause me to change my mind – stories from the front line or statistics? Could he disagree in public or only in private? Once he had made his case and failed to convince me, should he try again or just accept that the decision was made? How did I feel about his subordinates or peers knowing he disagreed with something?" By asking intelligent questions about his new boss's working style, the executive prospered throughout the CEO's 12-year tenure.
Moreover, new leaders look for anything that points to potential ethical or behavioural conflicts. If you demonstrate a deaf ear or override the CEO's signals, you can find yourself on the outs.
One chief executive fired his head of sales on the basis of such discomfort. "I felt he was just a little sleazy," he told us. "Nothing I could put my finger on, but he somehow made me uncomfortable. I didn't exactly fire him just because of that, but it reduced my tolerance for any other problems. So when another issue came up, I acted right away."
What about contacting your counterpart in the CEO's former company or division in an effort to learn more about his tastes? On this point, our interviewees were split. Some felt that questions about communication style were perfectly fair, and the counterpart might even go further than expected and volunteer extremely valuable information that you didn't ask for. Other CEOs felt that this gambit would be too risky because you don't know anything about the personal relationship between the counterpart and the chief executive – or whether they still talk to each other. One particularly suspicious CEO put it this way: "How do you know that this guy isn't already lobbying for your job?"
Understand the CEO's agenda. According to our chief executives, senior managers could be substantially more effective if they simply took a little time to put themselves in the newcomer's shoes and made an effort to appreciate his or her agenda.
First, consider the pressure your new leader is under, especially when it comes to making a strong start. A study of 20 CEOs in 2003 by McKinsey & Company showed that a new chief executive's fate depends heavily on the company's stock performance during his or her first year of tenure. The researchers found that 75 per cent of CEOs whose companies' stock rose during the first 12 months were still in their jobs two years later, but 83 per cent of those whose firms' stock fell were gone by that time. Accordingly, your new boss will be looking for constructive suggestions about actions that he or she can take very quickly. Can you help?
The CEOs we spoke with also pointed out that executives need to confirm their understanding of the new agenda directly with their new boss. While our interviewees understood their immediate actions sometimes confused their direct reports, they also felt that had the executives made an effort to speak with them about their agendas, the confusion might have been avoided. Even if you've talked to board members about their possible directives for the new CEO, his plans for the company will be influenced by his background, judgments, and expertise, not just the board's disposition. It's important to hear about those ideas directly from him.
Present a realistic and honest game plan. It's only reasonable for a new CEO to expect you to be prepared to discuss the situation in your division and your plans for progress. Make sure you've thought everything through and then present the facts as clearly as possible. Don't make the mistake of sugarcoating them, however – that would be exactly the wrong approach. A too-rosy report will make your boss ask herself, "Who are you trying to kid?" One CEO who didn't receive straight information from a number of direct reports put it quite bluntly: "I don't have time to sort out trust issues. If you don't show me the negatives, I suspect that either you don't know them or that you will try to hide things from me. If you aren't open with me about problems, I assume you are covering up."
Be on your "A" game. Because your new CEO is on trial, too, it's important to help him or her show positive operating results – and soon. You can't afford to allow your organisation to slip into paralysis because of the confusion attending a change at the top. This is no time to rest on your laurels. It's critical to demonstrate that you are active and competent and that important projects are moving full-steam ahead.
One new leader described winnowing the wheat from the chaff this way: "We had lots of interactions, including a four-hour executive meeting once a week. I simply observed who made sure to be there, who was prepared, who was action orientated, who identified solutions versus problems and who actually followed through on what they said they would do." Based on these impressions, the CEO jettisoned almost half his direct reports within a year and another quarter of the original group in the subsequent six months.
A surprising proportion of our CEOs reported cases of executives who, perhaps assuming that they were invaluable, displayed a dismaying lack of political acumen during the critical "honeymoon" weeks. One leader told of a subordinate who took a two-week vacation during the CEO's first month on the job. "The vacation had been scheduled a long time, and I didn't stop him, but I still never forgave him," the CEO said. "It was the dumbest thing he could do." Several of our interviewees ranted about troop absences. "Can you believe he was out playing golf with customers half the time in my first six weeks?" one top executive at a $15 billion consumer products firm raged. "He was never there when I tried to reach him.
I developed serious questions about his priorities." Certainly, customer entertainment is a norm in many industries, but face time is critical when the new boss is forming impressions.
Another reason to be on top of your game during this period is that your CEO may be too busy to coach you. Perhaps it's unfair, but the reality is that your new boss may not bother to tell you when you make a mistake; make two such errors and you are likely to be shown the door. If you do receive a warning, it may be discernible only from the questions you're asked about operational improvements or results. One new CEO, unsatisfied with the answers he was getting, began asking his head of operations more sharply worded questions over time. The responses did not improve, and the CEO dismissed him six weeks later. When asked if he ever sat the executive down and said, "This is not acceptable work," he laughed and replied, "You know, I guess I didn't. It never occurred to me. I was too busy."
The best way to improve your standing quickly is to take on a project – preferably a special one – in which you must interact extensively with the new leader over a short period of time. All our CEOs agreed on this point. When a third-tier executive in a transportation company did an outstanding job of working with the CEO to reform the firm's customer service interface, for example, the chief executive promoted her to the senior management team. Your new boss will appreciate spending time with you, and if his initial impressions of you have been less than stellar you might be able to turn his feelings around. No one will ever know whether any early casualties could have been avoided with the right exposure.
Offer objective options. Every new CEO has made difficult trade-offs to protect earnings or to invest in spite of earnings impacts; he has made choices between alternative growth paths and budgeting options. Every interviewee liked the idea of an executive objectively explaining previous budgeting decisions for his department, the rationale behind them and how the new CEO's priorities might warrant a reassessment of some of those choices. An executive who demonstrates the willingness and ability to constructively engage in a discussion of budgetary options, and helps the CEO translate a new vision into tangible decisions, will be very welcome. Tellingly, not one of the CEOs we spoke with had ever worked with such a person.
Should you also immediately discuss major strategy changes with your new boss? The answer is, "It depends." One CEO thought it would be helpful to hear an unbiased assessment of the division's prospects and receive a thoughtful range of options that he or she might consider. Others appreciated the sentiment, but felt that a new CEO would not yet be ready to assess strategic issues. Regardless of how or when you choose to discuss the alternatives, it is important not to appear self-serving; if you try to persuade the CEO to quickly invest huge amounts in your business, don't expect a warm reception. "I want real choices," one CEO said, "not end runs around the collective judgment of the other executives."
Harvard Business Review
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