How does a CEO know when it’s time to step down?
After years of trying to navigate her party, the government and the country through the Brexit fiasco, Theresa May’s time has come to an end. We know of the shenanigans behind the scenes but on the face of it, it seems to have been her own decision. The alternative would have been an embarrassing no-confidence motion to oust her.
She’s not the first leader to have faced that reality in the world of politics. We even saw it in the catholic church with Pope Benedict XVI. But how does a business leader know when the time is right to hang up their hat and to step down gracefully from the role of CEO?
Let’s explore the three phases in the life of a CEO
1. Discovery and Design
This is the initial phase where the newly appointed CEO takes time to get their feet under the table to learn the business. This is typically made up of a ‘discovery’ phase where the leader conducts various levels of SWOT analyses (internal strengths and weaknesses, external opportunities and threats).
This honeymoon period is often followed by their ‘re-design’ of the company vision, strategy and structure. The new leader will inevitably make changes to structure and the senior teams. Except when an organisation is in crisis, there is obviously no set time-frame for this. Much depends on the scale, the level of complexity in the business and in the external market environment. Other than some quick-wins, I wouldn’t expect major changes under normal circumstances in the first six months.
2. Deliver and Develop
In this phase, the new CEO executes the new strategies and makes changes. There is no set time-frame for this. For example, Jack Welch of General Electric was a very effective CEO for twenty years. In this phase, the CEO continues to build his/her team and drive the business forward.
This is when the CEO stays beyond their ‘sell-by’ date. It bothers many, yet few confront it. It is when the CEO no longer impacts the business in the same positive way as they did in earlier phases. It could be any number of things that cause it. It could be a competence or confidence issue where the CEO is unable to navigate the organisation through changing market challenges. The CEO effectively ‘loses the dressing-room’, meaning the senior team no longer has confidence in the leader. That’s when the organisation becomes complacent, morale dips and performance slips.
This can be true too for founders whose set of entrepreneurial skills were essential and appropriate for the early years. But the professional management and leadership skills required to bring structure and rigour to a business are different. I’m afraid not all founders have them.
Implications of not stepping down on time
When a CEO fails to recognise when the time is right to make way for new blood, the impact on the business can be very negative. Ultimately performance will slip due to procrastination, poor morale, inefficiencies, bad decision-making and more. Good people will get frustrated with the lack of progress and are likely to move on.
And in this dynamically changing world where customers crave newness and innovation, they too might feel the stagnation in your organisation and look elsewhere. Competitors of course will lap this up and maximize the opportunity that has been presented to them.
Tips on how CEOs can prevent entering the ‘decline’ phase
CEOs need to recognise when they’re at the peak of the ‘deliver and develop’ phase to prevent entering the ‘decline’ trough.
- The CEO should acknowledge their infallibility from the start and recognise that their time in the hot seat is limited. That will make it easier for relevant people to have grown up conversations about performance and timing.
- Ensure a strong board is in place that sets time-bound performance objectives. For example, it was announced recently that Michael O’Leary’s contract was renewed for another five years, albeit in a different role to that which he held for the previous twenty years. His own personal preference was for a rolling one-year contract. Your organisation should decide what’s relevant in your situation.
- Plan for succession at least a year before your departure. That will ensure a seamless transition and the business is not put at unreasonable risk.
- Plan your last 100 days. Bear in mind that it will take time for the new CEO to make an impact. Don’t upset the rhythm of the company by putting off what needs to be done. Consult your top team and act accordingly.
- Plan for your next challenge beyond this role. You still have a lot to give!
A number of years ago, I was involved in the appointment of a new CEO in Selfridges UK. Before her appointment, I took her for a celebratory glass of wine and asked her what legacy she planned to leave after she moved on from the role she was about to take up. You may be as surprised as she was with that question, as after all she hadn’t even started in the job.
My point was this. In some future time-frame, she would inevitably move on from the new role. I was curious to know what she’d like the future history books to say about her tenure as CEO. Focusing on that in advance would guide her through the years and ensure her desired legacy came to pass.
If you stay too long and enter the ‘decline’ phase, you risk building a legacy that focuses only on that phase. What a shame that would be. However, with proper planning and open dialogue, you can build a positive legacy during the ‘delivery and develop’ phases. That has to be a more attractive proposition.