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Unintended Consequences: When New CEOs Bring Their “People”

This is an old story that hasn’t changed much over time. An external person is selected to succeed the current CEO for any number of good reasons. Whatever those reasons are, this decision by the board dashes the hope of one or several internal candidates who thought they had the inside track. Detailed transition plans are created, the current CEO does everything s/he can do to make this a smooth hand off, the board does some cheerleading about the future and everyone holds their breath during those first few months as this new person (“who knows absolutely nothing about this place!”) comes on board.

Early in the new CEO’s tenure the politics among senior leaders are out of control. Making a good first impression, sucking up, not saying anything too crazy, bending over backwards to say nice things about others (especially those they would be thrilled to stab in the back) and other fun antics ensue. These games are played for two very good reasons: everyone knows the new person is sizing up his/her team to determine who will win the lottery and everyone assumes that the new CEO will bring their own peeps to the party. Count on it.

Let’s look at the first issue: evaluating the current executive team members. Even if an internal candidate is promoted into the CEO role, this will and should happen. These leadership transitions are a perfect moment to take a fresh look at the executive team and make some new decisions. When an outside person comes into the mix it is only reasonable that there is an assessment of fit and divergence and total team composition and required new skills or perspectives and some mutual professional respect. Think of it as executives reapplying for their jobs; a good exercise overall. A new CEO provides a moment in time to make some business critical decisions.

Now step into the dark side of repopulating the senior team with long term allies from the outside. It doesn’t happen in the first 3 months but over the course of about 18-24 months, as the CEO gets more immersed in the team and the business, s/he hand picks old cronies (with very little vetting by others) to join the team. All kinds of decent reasons (justifications?) are offered: he really knows this business, we turned around our last company together, we need fresh eyes from an industry leader, Chris is a loyal soldier but not a leader etc etc. Cue the groan machine.

Very few leaders, board members or consultants raise the red flag to caution the CEO on the negative unintended consequences to changing out several current executives for his/her longstanding compadres. So here is my short list:

  • In-group, out-group dynamics are created. The CEO and his/her posse are such a tightly knit group that they finish each others’ sentences, share a myriad of insider jokes from the old days, overtly or covertly harken back to “how we did it at…”, shut out input from others and generally create an inner and outer circle of confidantes. Taken to an extreme, this devolves into us vs. them.
  • Staff vie for sponsorship from the powerful inner circle. It is an open secret in the organization that to get ahead you must align yourself with a member of the gang to have any hope of ascending. In spite of strong advocacy and mentoring from other outer circle executives, those rising stars will be viewed as second tier players…unless they have also captured the attention of the gang. Internal, unproductive competition. Ick.
  • The CEO has blind spots about all team members strengths and weaknesses. Loyalty and camaraderie trump overall effectiveness in the eyes of the CEO. His/her people are either endlessly capable or just having a rough patch. Company old timers who are still on the team are doing a great job until they hit a rough patch. The same degree of patience or forgiveness does not exist. I am often called in to coach the old guard and am told that the gang members are doing fine-thank-you-very-much. I have certainly taken my share of slings and arrows when I disagree. I’ve even lost some contracts because of it.

You get the gist. When a new (from the outside) CEO brings in a batch of their own people, this is not necessarily a good thing.

To illustrate my point further, I want to share a story of someone who did just the opposite. (names and specifics have been disguised)

After an extensive search and much soul searching, the board decided to select Tamar as the new CEO. She was an outsider who had a very long and successful track record within the industry, a fantastic reputation, the respect of even the harshest critics and she had faced down many difficult decisions and business turning points. With the industry in flux, the board felt she would be best. Unfortunately, there were two very strong internal candidates. One was much beloved and the assumed heir apparent.

When Tamar was announced the industry applauded but the organization was upset and mistrustful. One internal candidate vanished into the background while the other, well loved one, left the organization as soon as possible. Tamar’s arrival was met with icy politeness, begrudging cooperation and extreme scrutiny. Every raise of her eyebrow or abrupt remark formed a short hand for the staff: “She’s a hard ass”.

Still there was the usual lobbying for Tamar’s attention. The staff was hoping she would see fit to offer a promotion or special relationship and her colleagues from the past were hoping they could get another job at her side. Tamar did not respond to any of this. Always polite and encouraging of good work, she showed no cards about plum roles.

After 18 months the staff was still waiting for her to bring in her own people. But this was never the plan. The staff was feeling rejuvenated in their work. They found Tamar’s leadership to be transparent and honest. They knew where she stood on most issues. She also had a poker face. If rumors were swirling about some awful change around the corner, she would simply say she wasn’t aware of that. If those rumors turned out to be true, she would pre-empt concerns by stating, “I wasn’t at liberty to discuss this before now. My intention was not to hide anything but rather to keep the confidences I am entrusted with. I’m certain you would want me to do the same with delicate information you share with me.”

As it dawned on the staff that Tamar was NOT bringing along her posse, the staff began to relax and see her in a new light. She was no longer a hard ass; rather she was tough and fair and supportive. As often as possible she developed individuals throughout the organization and positioned them for new opportunities. This opened up the playing field to everyone rather than a select few. It set in motion a new attitude of “if I want something new and exciting to do, it’s possible here”.

Lots of changes occurred in the industry during the 10 years that Tamar was at the company. Scores of longstanding employees were given new assignments and promotions and tons of chances to grow their skills. Any changes that she made to the senior team were through ordinary attrition. Eventually, if there was an open slot that was hard to fill because of a unique skill set, she recommended some people that she knew. She did not just appoint these people; they had to be vetted through ordinary processes. By the time this occurred the staff was thrilled to work with some of Tamar’s former colleagues.

Tamar warded off many job opportunities over the years and eventually left for a new pond. The farewells were many and tearful and she is having remarkable impact on her new company. The CEO that succeeded her was a long time internal candidate who everyone expected to be crowned. He battles with the other half of this equation: internal candidates struggle with the same myopia and blind spots about assessing the people around them.

If the overall health of the organization and the senior team is the number one objective, my recommendation is for the new external CEO to think long and hard before bringing in their long term buddies. The unintended consequences are very hard to mitigate or undo.

 

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