13 September 2006

An Ounce of Preventive Medicine

Venture Capitalists are often the impetus for the charge of bringing on a new CEO. And almost as often, the founder/CEO is reluctant to accept the change. However, typically the founder is in no position to object. He really needs to close that round of capital! An expensive retained search ensues. The Founder studiously interviews multiple candidates. Board members, recruiter and Founder have regularly scheduled sessions to vet these candidates. Leading candidates attend second and third interviews with a selected few meeting the staff. The Founder is usually given the final veto which results in making an offer to the candidate that they feel will do the "least damage."

All too often, damage is what occurs. Several venture capitalists have somewhat jokingly stated that to save time and money they should do two searches at once - first for the transition CEO who will fail and then for his/her replacement. While I am not aware of any situation where two searches have taken place simultaneously, it is clear that making a bad hiring decision wastes not only tens of thousands of dollars of search fees and costs, the time and opportunity cost taken by the senior management team and the board to do the search, but also the months when the company founders (pun intended) while this transition CEO struggles with the duel charge of leading the company while establishing a comfort level with the Founder.

This disconnect can sew the seeds of months or years of below the surface conflict, lack of productivity, adding up to a very costly mistake. While a good process may have led to the decision to hire the "right" CEO, even the perfectly suited CEO may not succeed without sufficient advance spadework.

Experienced boards know that the process of hiring a successful transition CEO is based on much more than a good recruiting process alone. Many have found that a good fit depends even more on ensuring the Founder is clear on the roles and responsibilities of the CEO and the Founder - a task that is not as simple as it sounds.

So rather than making that expensive mistake, some preventive medicine may be in order. Here are some "commandments" that will ensure the success of your Founder Transition:

1) Before engaging in the search, get the Board, the Founder, and the senior management team together to talk about WHY a new CEO should be hired; what are the challenges that the company is or will be facing that the existing team is not alone capable of accomplishing? While board members are always busy, be sure there is at least one designated "friend" to the Founder that dedicates sufficient time and maintains a close connection to keep the Founder informed and interested in the process.

2) Discuss openly how the role of the Founder will change when the new CEO comes on board. How will other members of the management team be impacted? Be specific. Discuss roles and responsibilities that will shift from the Founder to the new CEO. Now is not the time to placate a Founder just to ensure they go along with the recruiting.

3) When engaging the recruiter, be sure he or she is aware of the special challenge that the new CEO will face in order to effectively replace the Founder. Recruiters can play an important role in ensuring a smooth process. Experienced recruiters are familiar with the potential problems in having the Founder either intentionally or not chase off potential candidates. If the recruiter is not sensitive to this issue - find another one.

4) Be sure the CEO and management team is using some type of structured interviewing process - Like Topgrading: How Leading Companies Win by Hiring, Coaching, and Keeping the Best People. (Often Founders and the management teams are not experienced in the appropriate techniques for identifying the right hire.)

5) Create a transition plan, ensuring that there is a specific plan for how the new CEO will be indoctrinated, what information needs to be transferred, who will be engaged in the process and a time line for reaching certain transition milestones. (I suggest you get the new CEO to read the book: You're in Charge--Now What? before he/she arrives for their first day at the new company.)

6) Founder and Board in advance of the selected CEO coming on board, work out the tactical details of titles (a new one for the founder), office location, support staff, etc. in order to avoid the first awkward moments of the new CEO's tenure.

7) When the new CEO comes aboard, be sure that Board members are personally present when the new CEO is introduced to show the support that the Board has for the new CEO. Hold an all employee meeting to introduce the new CEO. Be sure the CEO and Founder have coordinated their "statements" so that the company gets the message that these two are working together.

8) Reinforce this process several times with joint Founder/CEO/Board discussions, measuring progress against the transition plan.

Everyone involved in the success of the transition (recruiter, Board, CEO, management team) should know in advance that not all Founder/CEO transitions work. The founder will no doubt go through the standard "grief" cycles of shock, disbelief and anger prior to either accepting or at least convincing the board he or she has accepted the inevitable shift in his or her role.

Even with sufficient preparation, not every hire is a good one, and not every Founder is capable of sticking around while a new CEO reconfigures his/her baby. So be honest, be clear, be attentive, and be sure that the board and the Founder have a high bandwidth communication channel throughout the process.