How Do You Know a CEO Candidate Is a Poor Choice?

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    We have both good and bad examples of CEO choices in the market. HP is perhaps the strangest company to watch because it often looked like it chose CEOs at random, completely missed the instance in which it accidentally got it right, and then went back to getting it wrong. This month, we have been looking at Yahoo CEO Marissa Mayer’s pending retirement; I’ve maintained that failure wasn’t hers, it was the Yahoo board’s. She didn’t have the skills for Yahoo and the board actually caused the guy who did have those skills, interim Yahoo CEO Ross Levinsohn, to leave.

    I think the problem is that a CEO’s job is very unique in terms of attitude, breadth of skills and, most importantly, leadership.

    Let’s talk about how to tell if a CEO candidate is a poor choice.

    CEOs and Leadership

    In looking at all of the strong CEOs I’ve studied, the most important aspect is leadership. You can hire staff to do pretty much everything else, but if the CEO can’t lead, you’ll end up with a mess. This was perhaps the sharpest difference between most Apple CEOs and Steve Jobs. Often those other CEOs were good managers, and they were often respected, but they couldn’t get people to follow them en masse.

    A natural leader doesn’t need a title to lead, and they may not have been captain of their sports team (often the captain isn’t the leader). Leaders are the people who, when in a group, call the shots and folks follow along. They can be quiet or forceful, men or women, happy or brooding, but the one key element is that, more often than not, in a group it is their wish that prevails.

    While not absolute, often it is the folks who build companies who are the most obvious leaders, with one caveat. Sometimes the person who leads the company isn’t the CEO and sometimes that distinction isn’t obvious, which has led to a lot of mistakes. For instance, in early Apple years, Jobs wasn’t the CEO, but he did effectively lead the company. That didn’t become truly obvious until he left and the firm started to flounder.

    If someone can’t lead, they are a poor choice. At the heart of most CEO failures I’ve covered is the distinct inability to lead. Leadership and management are not the same thing. It continues to amaze me how many boards seem unable to tell the difference.

    Love for What the Company Does

    Beyond product knowledge, the CEO has to really love what the firm makes, not just love being a CEO, which creates a real problem for succession management. Often the people who get the job are climbers and will do whatever it takes to advance, even if it hurts the product. For instance, it was really clear to me that when Leo Apotheker was fired as HP CEO, it was the result of a coup attempt by a subordinate who was willing to sacrifice billions of HP resources in order to get the top spot. Thankfully for HP, he didn’t get it, but a firm is far better off having someone who is motivated to build greatness than motivated to be great. It actually solves a number of secondary problems.

    Using Jobs as an example again, he was famous in interviews for keeping the focus on product information. His passion was to create stuff that was magical, at least it was when he returned to Apple, and he wasn’t a fan of personal fame. In fact, CEOs who seem to focus more on getting on magazine covers than on putting products on covers, and Carly Fiorina comes to mind here, tend to do really badly. One of the biggest causes of failure for a new CEO is the inability to recognize that they are not the product.

    If the CEO is coming from another industry, a good secondary focus is a passion for excellence and a knowledge of marketing, so that the firm gets credit for the excellence. If that is coupled with someone who loves and knows the product, the same successful result can occur. But if the only passion is to be a CEO, they’ll likely do poorly. Once they are CEO, what will they strive for? Fiorina pivoted to politics and her passion to become U.S. President, and that clearly was problematic.

    If the candidate has no love for what the company does and just loves the idea of being a CEO, they are a poor choice. I’ve often heard it said that the best CEO candidate is someone who is fully qualified but doesn’t actually want the job.

    Good Finance Fundamentals

    The importance of good finance fundamentals was one of the things I learned watching the IBM turnaround from both inside and outside the company. The heavy hitter wasn’t CEO Louis Gerstner, but Jerry York, the CFO the board hired before it hired Gerstner. From my perspective, Gerstner certainly got the importance of marketing and image, but if it hadn’t been for York, the company would have become financially non-viable. However, Gerstner knew enough (or the board knew enough) not to get in York’s way and to back up York completely.

    The CEO doesn’t have to be a CFO but they have to know the fundamentals well enough so they don’t run out of resources. I should point out that York was the CFO at Chrysler during that successful turnaround and was on Apple’s board when Apple was turned around. It is a shame he is gone because that is one guy who clearly was an under-recognized, massive asset.

    If the candidate doesn’t understand basic financials, they likely won’t survive the job, clearly making them a poor choice.

    Understanding of Marketing (Demand Generation)

    The value of the understanding of marketing is often overlooked but this is the one area where both Gerstner and Jobs stood out so it can’t be undervalued. Jobs just got marketing; the guy was a natural. The belief is that he picked up this skill when studying religious leaders in India; Gerstner scrapped the entire IBM marketing organization and rebuilt it around the best marketing talent he could find. This was how IBM owned the ecommerce segment years before it actually had an ecommerce product.

    This is a tough skill to find, particularly in a large company, where the jobs are highly specialized. At IBM, when I was there, the second marketing executive I reported to equated marketing with lying, and he was far from alone (likely why Gerstner fired the lot of them). Marketing is often an undervalued and under-resourced skill in tech companies, which suggests that a board may need to look hard at what Gerstner did. They may need to ensure depth here themselves as they may be unable to find a CEO who truly understands how marketing works. And if they don’t, they won’t be able to protect the firm’s image and brand effectively or properly fund demand generation for the products.

    Much of the problem with underperforming tech companies today is the result of the textbook mistake of cutting marketing to preserve margins and/or not ensuring adequate competence so that the money is well spent.

    What is interesting here is that CMOs make poor CEOs, as do VPs of sales. CMOs can lose track of reality as CEOs, and VPs of sales are excessively tactical and more focused on closing business, not sustaining customers. This isn’t to say they can’t be CEOs, just that folks coming from these areas need breadth more than others.

    So a CEO candidate who doesn’t “get” marketing is a bad candidate.

    Breadth and the CEO

    A CEO needs to know how a business works. Folks who have spent their careers in one part of a company tend to be blind to the other parts. As I noted, marketing and sales are particularly problematic: Marketing because it is a staff job and doesn’t need to be intimate with how things are done, and sales because it is staffed by folks driven by commission, which forces a very tactical view of the world. I should point out that Oracle was built by a sales guy, but that it nearly went under due to some really bad tactical decisions, showcasing the danger. Folks out of finance do have a deep understanding of how a business works, but they can become excessively focused on cutting costs, which can strangle a firm’s ability to execute. So, ideally, you want to see someone who has moved with success between some of the key line organizations of a company but not become excessively wedded to any one of them.

    A CEO candidate who has no breadth of experience is a bad candidate.

    Wrapping Up: CEOs, Leadership and Management

    I think the high number of CEO failures, which do devastating things to companies, is the result of not looking at the CEO job and adequately ensuring the skills at the top. You can hire people, like IBM’s board did, or directly mentor a CEO into becoming competent, which is what appears to have happened at Facebook, but the one skill you can’t either supplement or mentor effectively is leadership. That is the one absolute requirement of a CEO. Folks in the company have to want to follow them.

    I’ll leave you with one last example. In graduate school, we studied the Vietnam war, a war that was fought without leadership. The key officers managed from behind the lines and the term “frag” came into being, referring to instances when officers were shot by their own men. In Vietnam, an itty-bitty country kicked a super power’s butt. Remember, knowing the difference between leadership and management could spare a lot of folks a lot of pain.

    Rob Enderle is President and Principal Analyst of the Enderle Group, a forward-looking emerging technology advisory firm.  With over 30 years’ experience in emerging technologies, he has provided regional and global companies with guidance in how to better target customer needs; create new business opportunities; anticipate technology changes; select vendors and products; and present their products in the best possible light. Rob covers the technology industry broadly. Before founding the Enderle Group, Rob was the Senior Research Fellow for Forrester Research and the Giga Information Group, and held senior positions at IBM and ROLM. Follow Rob on Twitter @enderle, on Facebook and on Google+

    Rob Enderle
    Rob Enderle
    As President and Principal Analyst of the Enderle Group, Rob provides regional and global companies with guidance in how to create credible dialogue with the market, target customer needs, create new business opportunities, anticipate technology changes, select vendors and products, and practice zero dollar marketing. For over 20 years Rob has worked for and with companies like Microsoft, HP, IBM, Dell, Toshiba, Gateway, Sony, USAA, Texas Instruments, AMD, Intel, Credit Suisse First Boston, ROLM, and Siemens.

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