Tag: Board of Directors

Boards: Perform Due Diligence on CEO Candidates Upfront. GE Is Still Cleaning Up Its Mess.

I’m puzzled by the mess that is GE. The Company recently removed former CEO John Flannery after only 14 months at the helm only to replace him with a Board member (Larry Culp). I was a fan of Flannery’s effort to decentralize operations and to divest non-strategic businesses. However, I did not agree with all of his choices. Perhaps GE’s Board did not either. It is clear that the Board and Flannery did not operate in lockstep. Therefore, it would seem that GE’s Board performed little due diligence prior to promoting Flannery to CEO. Here are a few thoughts for corporate boards to contemplate prior to hiring a CEO.

1.) Executive Recruiters are there to get a deal done. Executive recruiters exist to get paid. Too often recruiters rush to fill vacant CEO posts with acceptable candidates in order to quickly realize their fees. The proper approach is to invest the time required to ensure CEO candidate fit. To this point, I’ve yet to see an executive recruiter publish statistics about median CEO tenure for assignments they’ve filled.

2.) Corporate Boards ought to adopt a more data-driven approach to ensuring CEO fit.

a.) Relationships are only the tip of the spear. Relationships are great to leverage when initially casting a wide net to identify CEO candidates. However, that is only the beginning of the process. Simply because “Person A” knows “Person B” does not qualify Person B for the CEO job. Consider GE for example. Flannery was hired by the company in 1987 and held a number of senior posts before becoming CEO in August 2017. I assume plenty of people knew him at a superficial level, but did anyone at the Board level “know” him at a substantive level?

b.) Candidate due diligence is often overlooked or an afterthought. Due diligence consists of more than talking with a few people and conducting a background check.

c.) Collect candidate data that matters. In the case of GE – why didn’t the Board ask Flannery to submit a plan for fixing GE as part of the recruiting/ diligence process? Instead, the company promoted Flannery to CEO where he then embarked on a 100-day tour to inform his grand strategy for repairing GE. This should have been part of diligence. Do not pass go, do not collect $200 until you show me something as a Board member that I can hang my hat on.

7 Rules for Keeping Activist Investors Away<span class="badge-status" style="background:red">Premium</span>

7 Rules for Keeping Activist Investors AwayPremium

The following 7 rules apply to public companies across a variety of industries – particularly to Enterprise Software, FinTech and Information Services companies. 1.) Make Your Numbers 2.) Regular, Transparent Investor Communication 3.) Drive Expanding Operating/EBITDA Margins 4.) Don’t Stockpile Cash 5.) Control Waste 6.) Use Debt as a Tax Shield 7.) Board Composition –…

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Steve Jobs vs. Tim Cook – Innovator vs. Operator – It’s In Their DNA

Personality Analytics Holds the Key as to Why Apple Was More Innovative Under Steve Jobs than Tim Cook

Apple has lost its creative mojo under Tim Cook. Incremental product enhancements have become the norm, replacing a time when revolutionary new products, space age design and landmark advertising was the standard. What changed? Look no further than the CEO chair. Apple founder, CEO and creative genius Steve Jobs prematurely passed away in October 2011. Jobs’ hand-picked successor, Tim Cook, is by experience an operator with a background steeped in supply chain experience. Cook could not be more different from Jobs from a personality standpoint (see our table below).

The importance of assessing a CEO’s personality when conducting a CEO selection process (corporate boards, executive recruiters), or investment due diligence process can not be overstated. This is especially true of industry verticals marked by rapid change where the cost of having an ineffective CEO can be extremely high. It is not so rare to find a situation where a CEO, Board and institutional investor base were slow to realize that a given company’s customers were migrating elsewhere due to product obsolescence or other factors that ought to have been recognized. Few participants want to acknowledge this type of deterioration early or mid-cycle and only do so when it’s too late.

CEOs that create “adaptable” corporate cultures are less likely to lead companies that suffer irreparable declines due to product under-investment or other negligent factors. Adaptable cultures are less likely to be caught off guard and instead lead market change.

Corporate cultures are often an extension of the CEO’s personality. Yes, CEOs influence culture and corporate strategy even in mega-cap companies. Look no further than Microsoft (MSFT) during Steve Ballmer’s tenure as compared to Satya Nadella‘s time as CEO. MSFT’s product & services strategy is dramatically different as is the firm’s approach to competing and partnering with other technology companies.

We highly value the personality trait “openness” in large part because of its relationship to adaptable cultures. Steve Jobs and Tim Cook score similarly on the openness scale – 92nd percentile and 94th percentile respectively. However, looking at the personality sub-traits under openness, Jobs scores far higher than Cook in the two most creative personality sub-traits: “artistic interests” and “imagination”.

Given that Cook lags in these areas, one would need to get comfortable with the idea that a non-creative personality like his (32nd percentile and 14th percentile as detailed below) is capable of generating massive creative output from Apple’s 120,000-plus employees. This is asking too much of Tim Cook in our view. What doesn’t come naturally doesn’t come easily and may not come at all.

Our May 2018 CEO personality analytics research piece may be found here: Personality Analytics: Technology CEOs Analyzed

Our recent podcast on the subject:

3 Rules for Tech CEOs

1.) Be Bold:

Similar to VCs, public investors want to invest in a bold vision. (See Tesla). Why does TSLA enjoy a premium valuation to other Auto OEMs? Answer: Musk’s vision and spin.

2.) Don’t Be Bullied by Investors – Dictate Your Story:

Tell the Street you plan to take margins down temporarily to pursue “X” initiative. Investors will cut you slack so long as you explain the rationale, the execution and the intended outcome.

3.) Balance Execution Today with Investment for Tomorrow:

Don’t fall into the short-term EPS growth trap at the expense of new product development, keeping your products fresh and building a culture of innovation.
If you pursue the short-term – investors will love you in the short-term (fleeting). The key is to build long-term value over years and decades (see AMZN, CSGP and SSNC as examples of the latter).