The Board's Strategy for CEO Selection

WHAT SHOULD BOARDS OF directors look for in a technology CEO? Which best practices ensure that these searches will achieve corporate goals? Christian & Timbers' Technology, Media & Telecom Practice compared more than 50 technology companies that had selected new CEOs, as reported in recent SEC filings. The findings from these software, hardware, Internet/media, business services, and telecommunications companies offered valuable insights.

Functional Experience

Analysis reveals that the majority of new CEOs developed skills and expertise in "customer-facing revenue roles" and then transitioned into broader general management responsibilities.

Companies' needs differ, of course. To ensure successful searches, boards must first identify core functional skill sets that their companies require in a leader. Too often, boards become distracted by nonessential "soft" skill competencies or they focus unduly on technical domain knowledge that is important, but can be learned on the job.

Effective searches begin with a board's understanding of necessary skill sets and appropriate skills terminology. It is interesting, for example, that the phrase "sales and marketing" has become such common vernacular that the two functions seem interchangeable. But the DNA of a sales leader is usually quite different from the make-up of a marketing counterpart.

With careful diagnosis, boards can identify required skills. If, in their assessment, the company has been targeting the right markets with strong products and services but has not succeeded in executing and driving growth, recruitment efforts should focus on top-quality candidates with pedigrees and track records in field operations. If the company's valuation is low, despite cash on hand, a deep customer base and decent margins, its positioning is likely outdated. That search should target candidates with strategic strengths and a marketing pedigree.

The right search partner will facilitate this discovery and planning process to help boards define desirable skills and what the "right" CEO should look like for them. This will lead to the creation of a Search Strategy and a Position Profile, which will enable the entire board to calibrate and evaluate candidates in a similar fashion.

CEO Background

When considering candidates, boards must appreciate that the "jump" from GM or functional head to CEO involves a sharp learning curve for even the most gifted executives. Directors are correct to mull risks of handing over the reins to a first-time CEO, especially at a public company. Yet qualified "rookies" are just as likely to succeed as their more experienced counterparts, when the selection process has been carefully designed and executed.

The best CEO search strategy involves preparing for an incumbent's departure by building a deep bench of leadership talent. Ideally, the board can then compare the strongest external candidates with at least two senior management members who may be "CEO material." During the grooming process, it is helpful to invite up-and-comers from within the organization to attend and present at board meetings. This exposes them to the nuances of board governance and increases the opportunities for interaction. Grooming is most successful when a board includes directors who will participate as mentors.

Were the CEOs internal or external candidates?

External candidate 57%
Internal candidate 43%

Did the CEO have previous experience?
Have been CEO before 50%
Have not been CEO before 50%

Were the CEOs from competitors?
Not from competitors 74%
From competitors 27%

Luring a capable executive from a competitor always seems appealing. Such individuals can bring desirable customer contacts, analyst relationships, domain knowledge, and strong team members. Yet only 27 percent of new CEOs in our survey came from competitors. Why? Increasingly onerous non-compete agreements, whether or not these are legally enforceable, may be one reason for this surprisingly low defection rate. Most senior executives also are understandably reluctant to risk losing the goodwill of their current Boards. Additionally, boards often believe that the best CEO candidates will come from outside of their business sector. These leaders can contribute the experience of a larger scale operation, as well as fresh thinking from a highly successful company.