More Board Directors are Stepping Into the CEO Role

Why has the number of directors being tapped for CEO more than doubled in the past year?

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Oct 13, 2010, 12:51 ET

NEW YORK, Oct. 13 /PRNewswire/ -- “As companies experience a period of serious disruption, many boards looking to replace the CEO are increasingly turning to one of their own,” says John Wood, Vice Chairman and Global Managing Partner of Heidrick & Struggles’ chief executive officer and board practice.

The past year has seen a significant jump in the number of Fortune 1000 directors becoming CEOs of the companies on whose board they serve: nine directors stepped in as permanent CEOs from the period of July 1, 2009, to the present, compared to only four directors tapped as chief during the year prior. Three additional directors have been named interim CEO this year, bringing the total director-turned-CEO number for the past year to 12.

Why has this happened?

"Boards are being confronted with market-driven disruptions and are showing a willingness to make a change if a lower risk solution is readily available.

"Key to selecting a director as the new CEO is the board's belief that the person has the right skills, is available and can commit to the role. Boards also have some faith that the new CEO understands their views on what needs to change."

What are boards looking for in their CEOs today?

"Grappling with pressure from all sides – business downturn, regulatory crackdown, and shareholder dissatisfaction – boards are finding that a current director brings valuable assets to the CEO job," says Mr. Wood:

Ability to step in quickly – "At companies that do not have an adequate immediate succession plan in place, a change in leadership may require a lengthy search. Or boards may feel they cannot afford to wait for an internal candidate with no CEO experience to get up to speed. By tapping a board member for the job – who is often a former CEO himself or herself – boards are able to move very quickly and achieve immediate results."
Familiarity with the company – "An obvious attraction in choosing a current director is his or her familiarity with the company, its business, and its culture. This also helps accelerate the transition time from old to new CEO."
Alignment with board – "In picking one of their own, boards are far more likely to have someone in place who is already aligned with their thinking – the disconnect between the CEO and board is minimized. Having a director who is ready to step in may even accelerate the board's decision to change the CEO."
Risk reduction – "Choosing a current director as CEO is a highly pragmatic decision by the board – a practical solution to an atypical set of circumstances. Directors are a known quantity, and often appear to be a less risky option than an external candidate or even the internal CEOs-in-waiting."

How does this trend affect director recruitment?

"We are often finding, in our director recruiting assignments, that boards are considering putting a candidate in the CEO succession path. When evaluating new board candidates, the one who could be a potential successor can absolutely tip the balance.

"No board wants to recruit a director who's angling for the CEO job, but some nominating committees are, in a quiet way, building the ability to step up as CEO into their selection criteria."

The director-turned-CEO perspective

"Boards often find that the director they want to step into the CEO position is more than willing," says Mr. Wood. "In many cases, the director is a retired CEO himself, and now has the time to do the job. Many are eager to get back into the game and return to the top seat.

"It's also very appealing to them to know that they already have the support of the board. Getting board buy-in is a major hurdle that many prospective CEOs feel they must overcome before they take the job. In these situations, this problem is not really an issue – their fellow directors are people they have spent years with, discussing and debating issues. Directors-turned-CEOs have an understanding of the personalities on the board and the key influencers, and know they are going into a job that will be easier to handle because of this.

"Alongside these advantages, however, is another level of pressure for these new CEOs not to let down their fellow board members. Since they have been working together as directors for so long, and presumably have been in alignment, there is a heightened expectation about performance and delivering what the board wants."

Will this become the best way for companies to find their next CEO?

"Tapping a fellow director to be CEO is part of a broader trend in boards becoming more engaged in the CEO succession process. Boards have internalized this as a key responsibility, and are seeing turning to one of their own as the most practical solution – a good arrow in their quiver of CEO succession options.

"Some may wonder whether going inside the board is cronyism, but it's really not. Having management and the board agree on strategy is vital to an organization's ability to move rapidly and with certainty in difficult times, and the board pick is an effective, strategic way to achieve this. It is, in many ways, a good risk management tool for the board.

"However, while the ongoing disruptive business environment will give some legs to this trend, the fact is that this option cannot replace a good internal succession plan. Best practice still demands that companies create a leadership plan that develops talent and a solid 'bench' of successor candidates."

If you would like to speak with John Wood, please contact Davia Temin or Suzanne Oaks of Temin and Company at 212-588-8788 or [email protected].

About John Wood

John Wood is Vice Chairman and Global Managing Partner of Heidrick & Struggles' chief executive officer and board practice. Based in New York, John brings more than 15 years of executive search consulting experience and an extensive track record of recruiting chief executive officers and board directors for a broad range of international clients. He has completed nearly 200 chief executive officer and board searches in recent years.

About Heidrick & Struggles
Heidrick & Struggles International, Inc., (NASDAQ: HSII) is the leadership advisory firm providing senior-level executive search and leadership consulting services, including succession planning, executive assessment and development, talent retention management, transition consulting for newly appointed executives, and M&A human capital integration consulting. For almost 60 years, we have focused on quality service and built strong leadership teams through our relationships with clients and individuals worldwide. Today, Heidrick & Struggles' leadership experts operate from principal business centers in North America, Latin America, Europe and Asia Pacific. For more information about Heidrick & Struggles, please visit www.heidrick.com.

CONTACT: Davia Temin or Suzanne Oaks of Temin and Company at 212-588-8788 or [email protected], for Heidrick & Struggles.

SOURCE Heidrick & Struggles