Financial Services

During the first three months in a new job, CEOs lay the foundations for their entire term of office. A recent study by Egon Zehnder International shows that there is a great deal more that both organizations and the executives themselves can do to help them rapidly and effectively deploy their full potential in the best interests of the company.

Few events in a company’s development arouse such great expectations – or occasionally such fears – and generate as much attention as the arrival of a new CEO. What will their management style be? What will stay the same – and what will have to change? Will the new leader repay the hopes invested in them? Numerous investigations by organizational and leadership experts have clearly established that the time span within which new corporate leaders lay the foundations for their entire term of office is no more than a few weeks. Whether the balance will tilt towards success or failure is determined not after years at the helm, but as early as the first three months. So it is all the more surprising that, in actual practice, after all the care and effort that supervisory boards and nomination committees put into choosing CEOs, no sooner have the successful candidates taken office than they find themselves largely left to their own devices. These deficits persist despite the well-documented fact that transition periods can be very costly for a company, if not ruinous, as decisions prove ill-informed or are left unmade.

Left to their own devices

It is astonishing how little companies themselves do to prepare the new chief executive for the challenges ahead, even though all the relevant knowledge lies to hand within the organization. The new CEOs themselves seem to take a scarcely less insouciant approach, making little attempt to acquire such invaluable information before they actually take up the reins. As a result, the first months in office are often a very steep learning curve for the new CEO, during which he or she needs to acquire, at speed, the necessary background knowledge for the role. At the same time – still in the throes of the learning process – the new arrival will inevitably be called upon to make key strategic decisions for the company’s future.

In a recent survey exploring “The First Three Months of Successful CEOs,” focused on the financial services sector, Egon Zehnder International found that it took these CEOs about five months on average to feel comfortable in their new role. However, the periods indicated by the interviewees in this respect varied from one month to the entire first year, before they felt they had everything under control. The time taken to settle in is clearly a factor in determining job satisfaction in the early stages. That said, in the first few months nearly one fifth of the CEOs interviewed indicated that they regretted having stepped up the career ladder somewhere between “occasionally” and “very often.”

The pool of corporate leaders for this survey comprised 69 top professionals in financial services organizations from Europe, America, Asia, and the Pacific region – all of them considered successful within their specific organization and market. On average, these CEOs had been in office for two years at the time of our survey. The vast majority of managers we spoke with were appointed to manage a “discontinuation”: 30 of them had to handle a turnaround situation, and 25 were expected to manage growth/innovation initiatives.

The key phases of inception

We wanted to find out how these CEOs handled the demands made of them in these circumstances. To this end we divided the inception period into four key phases:

■ In the first phase – preparation for the new role – for most of the CEOs we talked to, undertaking some form of special preparation for their new role seemed not to constitute a conditio sine qua non of a successful transition and introductory phase. Only very few considered it important to assess the objectives and challenges of the role they would need to execute, or to review the overall culture of the firm they would be joining. One aspect that at least some of our interviewees regarded as important was to familiarize themselves with the approach and achievements – and the mistakes – of their predecessor.

■ The second phase – taking up office – starts with the moment that all concerned await with great expectations – the “installation of the new boss” – and includes the first week in office. In these few days, the vast majority of the financial services managers we surveyed aimed to familiarize themselves with their new environments as quickly as possible. Particularly in large organizations, they focused their attention on understanding the business strategy and assessing the quality of their executive team. It is interesting to note that very seldom during our work in general have we met top executives who were given any kind of orientation plan to help them find their way around the new organization. None of our interviewees for this survey received any such “road map” or took part in any induction program.

■ The third phase – assuming strategic leadership responsibilities – reaches its peak after a few weeks. Here, CEOs above all want to get to grips with the corporate strategy, defining their own goals and success parameters and then starting to implement them. In their own estimation, the CEOs we spoke with were very successful in this respect. They attributed this primarily to the considerable amount of time spent in intensive study of the corporate strategy, understanding and improving it, and then sparing no effort to communicate their views on the future strategic direction that the company should take.

■ With regard to the fourth phase – assuming full leadership responsibility – the CEOs believed they were sufficiently effective and successful in their first three months, in terms of understanding the key drivers of the business and finding the right insights to develop the company.

In synthesis, these managers attributed their ability to carry out their new role successfully, despite having little or no preparation, to a number of personal attributes:

• a strong commitment to the new role;
• a general ability to rapidly adapt their own agenda to the needs of the business,
• taking account of both general outlook and emerging priorities;
• a strong emphasis on communicating their managerial style;
• a firm grasp of how the company fits into the general business landscape;
• very firm control of the corporate strategy, its design and its communication,
• and a balanced personal life.

Self-diagnosed areas of improvement

Even so, these managers retrospectively considered that they might have been even more successful if they had done a better job of addressing specific issues – managing the relationship with the chairman and the board more effectively, for example. Many times in our interviews it emerged that CEOs were not really sure how to set up a communication protocol with the board, either as individuals or as a team.

Furthermore, a substantial proportion of the CEOs said that they should also have invested more time in assessing the overall culture of the company they were joining and the competencies of their key team members. People decisions in particular, they said, should be well-founded, rather than being made in haste.

Besides, in the case of international corporations, the complexity of modern-day organizations calls for a thorough approach to the management of internal relations with the headquarters.

Our further suggestions

The CEOs we spoke with were mentally well prepared for the challenges that lay ahead. They were, in a manner of speaking, ready to take the plunge, but it was still a plunge into the unknown. Yet there is no need for this to be the case. Even successful managers could obtain better returns on their efforts if more attention were paid to the way in which they prepare for their new task. This is the moment when analytical and structured managers might decide to base their decisions mainly on instinct rather than using a more rigorous approach, and undertake, for example, an intensive exchange of views with a well-informed and trusted advisor – someone with a detailed knowledge of the company and its inner workings. This could establish a basic information platform before the CEO takes up residence, laying a firm foundation for a plan of action for the critical first three months.

Another area offering great potential for improvement is the managerial and cultural induction of the new CEO from the moment he or she takes office, a process to which both the manager and the company itself can contribute. Managers need to revise their “learning approach” to be ready for this crucial moment. Companies should provide sufficient orientation for the new boss to find his or her own way around as quickly as possible. This, however, calls for carefully defined processes – governing discussions between the CEO and the chairman or supervisory board, for example – and appropriate tools to provide the CEO with an overview of the strengths and weaknesses of the executive team and the organization as a whole.

Just how important a successful start in a new role is, enabling top executives to rapidly and effectively deploy their full potential in the best interests of the company, may be illustrated by the following fact: Top managers are assigned new responsibilities on average every three years, which means that they will be confronted with this topic many more times. So the sooner managers, boards and companies establish a professional induction process, the more satisfactory the outcome will be.

For further insights download the complete study published by the Financial Services Practice of Egon Zehnder International Financial Services Survey 2007: The First Three Months as CEO