BOARDS OF DIRECTORS often make mistakes when they conduct searches to find chief executives. Take the chairman of a micro-cap who shut a search down for three weeks as he took his second family on a long-promised trip to Tanzania, much to the befuddlement of the rest of the search committee, candidates, and the search consultant alike. And, of course, we have all read, or experienced, names of candidates being leaked to the press by board members, thus putting candidates in awkward positions, perhaps even souring their interest.
Yet such missteps, no matter how inexplicable, always, somehow, seem to be overcome. No, the real mistakes that boards make, and the mistakes that can greatly impact the value of the company to its shareholders, have much more to do with how the board, through the search committee, defines--or does not define--what the new CEO must do, and how it verifies that the candidate is up to the task.
Mistake 1; The search committee fails to articulate what drives value for shareholders
A board must have an independent perspective on how a company can best create value for shareholders and how that process may evolve in the future. That understanding must underlie any decision about a new CEO and must be communicated to the search consultant.
Too often, boards wait for the new CEO to set the strategy. It is the rare executive, however, who can successfully lead strategies for diverse companies. What best creates value just varies too much. The skills and experiences sought in the new CEO should flow logically from the strategy for creating value, rather than the other way around.
The board best forges a consensus on what a candidate must have done and what "would be nice" that he or she has done. Few candidates possess all the desired skills and experiences, and much time can be wasted pursuing candidates who fail to possess a qualification that the search committee belatedly determines to be critical to success.
In this instance, members of the committee fall back on their own perceptions of the "quality" of the candidate's current company, an off-hand reference, or the scale and scope of the candidate's responsibilities. These considerations are not unimportant, yet using these factors alone may lead to the wrong choice.
When the board does not, or cannot, define what it seeks, the search consultant finds himself presenting a panoply of candidates, some who work and some who do not, and frustrating the search committee...