How to find the next CEO...

One of the key points that all healthy and growing companies will eventually hit is the day when they have to hire a CEO to replace the founder. Exactly when this day happens differ widely from business to business. For some businesses it comes before the business even starts doing business, for some it can be when the company is already an established player with decades of history.

This is often a very sensitive issue for entrepreneurs. Deciding when it is time to “let go” requires the founder to be clear and honest about his or her own capabilities and skills not to mention mortality. It also requires forming goals and aspirations for the company that will outlive their own period of management and perhaps even their own lifetime.

The Internet bubble-years provide a couple of great examples of early hand-over of power. In the highly youth-oriented frenzy of business start-ups, the concept of “adult supervision” became a well-known concept. Companies like Yahoo!, eBay and Google was started by people who (possibly with the help of their Venture Capitalists) decided early on that they probably were not the best people to actually run and grow their businesses. Instead they hired seasoned managers that had experience of running big companies. Judged from the performance of these companies, the judgment in these cases was right.

Another situation is when the founder is obviously more than well qualified to manage the business. Examples of this would be Bill Gates and Michael Dell who have set new high scores as corporate leaders. When these types of leaders step down from the day-to-day management of the business we know that it is not because they can’t deal with the requirements of the job but because they think their skills can be better used in a different capacity.

Many founders have a really hard time coping with the succession issue. The fact is that most businesses are not runaway successes. Most companies spend years struggling in obscurity with hardly 2 cents to rub together. After a struggle like that it is hard for the founder to let go. The company has taken up the best part of their lives and thoughts for so long they tend to sympathize with Louis XIV who said “I am France.” They can’t conceptually separate themselves from their companies.

Many founders also have the concept of building a family firm that their kids can manage one day. The idea of the family legacy and multi-generational wealth is extremely appealing to many. The idea of breeding a son or a daughter to take over is a concept that is rooted in human nature. But even if the son or daughter is interested and willing to take over, is he or she the best person to manage the business? After all, other shareholders, the customers, vendors and not least the employees deserve and demand that the best possible person takes over. Anything else would be irresponsible. History is littered with the stories of countries, fortunes and companies being destroyed by second or third generation guardians who can’t live up to the power and skill of the founding father. Then on the other extreme is a company like Japanese Kongo Gumi Co. which is into its 40th generation of family leadership. The current CEO, UCLA-trained Masakazu Kongo says their firm has survived by being flexible. "Most families automatically choose the eldest son to continue their business," says Masakazu. "Our family always chose the son with the largest sense of responsibility."

So how to deal with these problems? How to make sure that by the time the founder is ready to step back from the day-to-day operations and let someone else take over there is someone willing and capable to take over? The answer is surprisingly simple. All it takes is a long term view and some planning. The founder has to make employee development and management training an integral part of the company. The idea is simply that managers should come from within the company so that by the time they are needed they have been firmly trained and have the right experience for the job. This strategy works the same whether the preferred CEO-in-waiting is a relative or not, by taking an organized approach to people management, even a small firm can quickly build their bench strength so that not only there is one or more potential CEO’s, there are also skilled managers available to take more on more responsibilities as the company grows.

Many small business owners out there will probably be quick to raise their voices and say that they cannot afford training. Another common excuse is that employee turnover is so high anyway, so why bother training people who will then run off and work for other companies? But a number of examples shows us that this is flawed thinking.

First of all, training doesn’t have to take a lot of time and money. In many cases employees can train each other simply by sharing what they have found to work the best. With a bit of creativity fun and educational training programs can be designed that does not take a lot of resources.

Second, employee turnover is a situation that can be greatly reduced. Training, employee development and a promote from within policy are in themselves proven techniques to do so; when employees knows that they can better themselves and have a good future with a company, why switch?

Thus, what at first seems like a cost actually becomes a positive spiral that makes costs lower, employees happy and probably will allow the founder to live a healthier life as well since he or she can count on his employees to take responsibility for the business to a higher extent.

Many of the most successful companies have made employee development one of their strategic advancement. One of the best case studies of this is General Electric who since they were founded in 1892 (!) has never hired a CEO from the outside. Not only have all their CEO’s been homegrown, but throughout the last century and more, each GE boss has been hailed by his contemporaries as an outstanding business leader.

But how to know if someone has the right qualities to be the next boss? All the successes and failures in any company flow up and down the hierarchy, but, ultimately, the CEO is the person in charge who needs to assume responsibility for the outcomes.

There is certainly no "one best" CEO or boss. This individual is a combination of personal and professional traits, behaviors, characteristics, knowledge, skills and abilities. However, most people would agree that success definitely depends on the best matching of those factors with the environment or culture of your company. The successful CEO of IBM, for example, might not be successful at a chain of statewide supermarkets or high-tech fix-it shops. Failure or success comes not only from within the individual, but also from the individual who works within the existing culture or desired culture that the CEO attempts to develop. By developing people from within, the company has a better chance to make sure that the candidate truly lives the values and corporate culture.

First, a culture is generally defined as the sum total of a group or organization's actions, structures, policies, beliefs, legends, ceremonies, history and values. The CEO and the people he or she trusts and/or delegates to be responsible for creating or furthering the ongoing aspects of that culture.

If you want to improve the chances that you will decide on the best candidate for your culture, you will need to take a hard assessment of your internal and external corporate environment, no matter how large or small your organization may be. For instance, with whom will the CEO communicate: other CEOs? Community leaders? The press? What is the CEO's vision for your company? How well does it mesh with your view? Just where does the CEO want to take your company, or is that candidate happy with the status quo? What goals does this person have for moving from today's world into tomorrow's world? How will that be achieved? At what cost and to whom? With how much change? Using which process of change?

What values does the CEO candidate espouse? How does this person feel about these issues: honesty, integrity and ethics? Outcome issues such as productivity, revenue and quality? Values such as individual vs. teamwork? Highly structured vs. less-structured leadership styles? Autocratic vs. democratic processes? People-oriented vs. productivity-oriented? Trust vs. distrust? Creativity and innovation vs. current focus? Risk-taking vs. playing it safe?

These are, of course, just some of the descriptors that can define a successful CEO. The first and most fundamental step is to realize one of the most crucial tasks of any leader is to prepare the leaders of tomorrow, today.