BSG From the Boardroom

A curated selection of executive opportunities, industry highlights, and unique insights in executive search.

    When It's Time to Replace a CEO

    During a moment in recruiting history when most executive search professionals are suffering, our practice in for-profit education has been thriving. Part of the reason is what I call " board fatigue"--PE or VC partners and other board members who've grown impatient with the CEO of a portfolio company. In some cases their dissatisfaction is known to the CEO; in others, for various reasons (such as accreditation issues in the postsecondary education market), the board has chosen to conceal its desire for change, even from the sitting CEO.

    The call to me typically begins, "We're thinking of replacing a CEO. But we need this to be done in confidence. Can you do it and still be effective?" The answer, of course, is, "Yes, but first give me one good reason why you don't sit down with your CEO and discuss why the change is needed."

    Answers vary, but the most common is, "We don't want to lose momentum or cause uncertainly within the company," i.e., "We're afraid that news the CEO is being replaced might affect morale and revenues."

    This may be true, of course, but before embarking on a sub rosa search for a replacement, consider these issues--

    •    Are you sure the situation cannot be resolved without the CEO being deposed? Have you tried everything to          turn him/her around? Is the problem focused on a few concerns--work ethic, slow decision making, failure to            address a single overriding market challenge, etc.--or is it overall leadership?

    •    Are there intermediate steps you might take to at least put the CEO on notice? "Probation"? Come to Jesus?          Sabbatical? Revisiting compensation?

    •    Could the problem be resolved by bringing in the right support, e.g., a COO or new CFO?

    •   Could the CEO be moved into a different to position, allowing you to bring someone in above him/her? Would          your CEO accept demotion to President and COO, for example? Could the CEO be moved into a Chairman             role?

    •    How can you present the decision to replace in such a way that the CEO sees the wisdom in your decision?            Obviously the CEO has a financial stake in the company's success. Might it be that he or she will be relieved?        See this as a win-win?

    •    How valuable could the CEO be in the process to find the replacement? Do you want him/her to play an active        role, and would s/he be effective in this role, if properly motivated?

    •    What are the risks if word gets back that a search is being conducted for a new CEO?

    •    What are the risks that a disgruntled CEO could sabotage the search process? Agree to participate in                       interviewing, then blow candidates out of the water?

    •    What effect will conducting the search in confidence have on the overall quantity and quality of candidates? On       your ability to secure the best among these?

    •    How and when do you expect to inform the CEO what's going on?

    •    What role will the departed CEO have in the transition process once the new CEO is named?

    If your decision remains to conduct the search sub rosa, your first line of attack should be internal. Do you or others on the board already know the right replacement? Could that replacement be the COO or someone else within the company? Someone from another portfolio company? Someone you interviewed for another position, or in a previous CEO search? Someone from a major competitor whom you have reason to believe could be lured away? The fewer the people who know of the replacement process, the better.

    If you engage a search firm, make sure you are comfortable that they are comfortable--and have experience with this type of search. Have them share their stories of similar assignments: the scenarios, the specific challenges, the process, the outcomes. Unless they are truly confident they can succeed with "one hand tied behind their backs," they won't. Also make sure they use a Confidentiality Agreement with all prospective candidates, and that, in addition, they enforce confidentiality with candidates throughout the process through constant reminders. Some candidates love to brag--or just back-door reference you and the company.

    And keep asking yourself, is now the time to sit down with your CEO?

    So how hard is it for an executive search firm to conduct a quiet search? Not so, if they've done it before. Being presented an opportunity in the abstract--without knowing the "who"--can be enticing to a candidate. The idea of replacing a sitting CEO can also be enticing. The key to how enticing can depend on how much latitude the recruiter has in profiling your company. If it's "an industry leader in LED technology," then the appeal may be high...but the exposure equally high. If it's "a profitable, private equity-backed company with EBITDAs > 20% and a market cap of $1B," then the appeal may be equally high but without the downside of exposure. A good recruiter knows how to set the hook without naming the fly.

    Where it can and does affect the recruiter's performance is in sourcing others for leads. You no doubt know from your own experience that recruiters are on a constant hunt for referrals. Now think about the reasons you do and don't respond. If I called or emailed you that I was looking for Eric Schmidt's replacement at Google, you might just take time to reply. If instead my message was, "Doing this search. Can't tell you much other than it's a CEO position in the K-12 curricular market," you might well not. More than half of the executive placements we make come from such referrals. Starve the lead process, and you starve the search.

    Willingness to relocate the candidate can also be a factor. The wider the geography of the search--the more candidates from outside your region--the less likely is it that word will circulate back to your CEO or to others in the company, and the more latitude your recruiter has.

    Give serious thought to how and where you intend to interview prospects, and to how many you expect to interview. It may be relatively easy to bring candidates into your office, and to the offices of others on the search committee. At some point, however, they may want to "smell the paint"--meet others in the company, see the offices, gauge the culture (and the commute). This may be the point of no return. Is now the time to reveal?

    In the best of all possible worlds, your CEO will be your biggest and most powerful advocate for change. He or she may be the critical factor in a candidate's decision to accept an offer. The deposed but relatively content CEO can also be instrumental in the transition process. Be thinking about what you can do to secure the CEO's cooperation. Extra equity? The right spin on how the replacement is announced? Promise to plug into the right future portfolio company?

    Confidentiality can be a problem. But it does not have to be--if you think through the alternatives, work hard to get the CEO's buy-in, and work with a search firm that has the right expertise.

    Request Information

    -by Ralph Protisk on Mar 15, 2010 5:03:37 PM
    Find me on:


    7 High-Risk Search Strategies to Avoid Guide Download

    Subscribe to BSG

    Recent Posts


    Ready to work with BSG?

    We help the best in the business find the best for their business.