CEOs: Be Ready on Day One

As Hillary Clinton might say, CEOs stepping into troubled companies need to be ready to show results "from day one." Shareholders have become more impatient--and vocal--putting tremendous pressure on CEOs to demonstrate immediate improvements.

These CEOs have little if any "honeymoon" after they step into the role. That makes succession planning on the part of boards more important than ever. Nowhere has this been more evident than on Wall Street, where the very life of some financial services firms depends on the ability of the board to bring in a new CEO capable of turning around the ship in a matter of weeks or months. Investors will not react kindly to the announcement of an interim chief or word that a search is underway.

The latest example of a CEO stepping into a job and getting right to work is American International Group’s Robert Willumstad, who was tapped to replace Martin Sullivan. Willumstad is already attempting to mend ties with disgruntled former AIG CEO Maurice “Hank” Greenberg, who owns significant shares in the company. Willumstad has also promised to overhaul AIG’s strategy to yield better results. The clock started ticking as soon as he took the helm and shareholders will be watching to see whether Willumstad can turn AIG around in quick fashion.

Jeff Kirschner, a senior consultant and head of the financial services practice at Hay Group, says that an incoming CEO can bring renewed optimism. However, Wall Street is notoriously unforgiving and Willumstad and other newly appointed CEOs will be expected to churn out positive results in the first or second quarters of 2009.

Kirschner likens the succession of CEOs to that of managers of major league baseball teams. “You don’t get enough recognition when the team is doing well, but you’re sure to get the blame when your team is doing badly; and you can’t fire the players,” he says. One would think that shareholders might be patient to see what a CEO can do but the reality is that shareholders want to see change right away.

“Shareholders will either have confidence or none at all," Kirschner says. And, he says, if increased returns can't be generated off the bat, they at least want to see changes being made. "Shareholders realize that sometimes great, immediate earnings, are not possible in the first of second quarters. However trust starts building if they see that his or her actions are taking them in the right direction.” The important elements to developing trust are transparency and candor, according to Kirchner.

“You don’t get enough recognition when the team is doing well, but you’re sure to get the blame when your team is doing badly; and you can’t fire the players.” 
                                                                                                   - Jeff Kirschner

To find a CEO that can begin to fix the company on day one on Wall Street, especially during a subprime crisis, is no easy task. Boards want to get it right the first time. Christine Rivers, vice president and a member of Hay Group Boston’s leadership team, believes that boards need to have a comprehensive and thoughtful succession process. “Leadership in general needs to be more prepared so that a board isn’t caught off-guard when their CEO leaves abruptly,” says Rivers. Instead of merely reacting, boards should be proactive.

“More boards are considering succession plans than before. Boards are communicating more with their leadership teams so that in the event that a new CEO needs to be appointed, they already know what candidates would be best suited for the job,” according to Rivers. By getting to know their team better, management is better equipped to handle CEO successions as well as run their business more effectively in general.

A board does not want to be caught off-guard. Rivers says that especially in the financial services sector, companies have been forced to deal with the abrupt departures of CEOs and as a result, a chairman is immediately placed as the interim CEO. “Boards want to look like they have planned for an abrupt resignation or ousting of a CEO,” she says, "No one wants their chairman to become a makeshift interim CEO," she says.