Changing CEOs — What Is The Process?

Big Red Car here in the ATX waiting on another dawn and another great day cause this is Austin by God Texas. On Earth as it is in Texas!

So, today, we chat about the orderly change of command when you get a new CEO. This is really targeted on current CEOs and to be new CEOs.

Nobody ever talks about how CEOs hand companies over to new CEOs because it is often accomplished at the end of a plank when a CEO is unceremoniously deleted — no, I meant “fired” or “terminated” or sent to “pursue other interests.” No, I meant fired. Sorry.

It happens.

Army days, company commanders CEOs

The Army is very good at changing commanders. They do it frequently.

The basic combat unit of the Army is a company. In the combat engineers (glorified infantry who get to blow shit up as part of their jobs and force river crossings amongst other very cool stuff), a company is just less than 200 men organized into three line platoons and a headquarters platoon.

The company commander of a combat engineer company is a Captain though lots of First Lieutenants get companies and grow into their rank. The first time The Boss was a combat engineer company commander he was a First Lieutenant.

In wartime, they do it on the fly on the battlefield. The CO (commanding officer) goes down and the XO (executive officer, second in command) takes over.

Usually works like this, “Sir, the Old Man is dead/wounded/missing/out of commission, you’re it.” [You call a company commander the Old Man even if he’s 25. It’s an Army thing.]

The XO radios the platoon leaders and it’s business as usual. [XO gets killed then the senior platoon leader takes over. The Army has a system.]

In peacetime, they do it at a change of command ceremony.

Typically, the battalion commander (fire teams, squads, platoons, companies, battalions, brigades/regiments, divisions) takes the company flag (guidon) from the outgoing company commander and hands it to the incoming company commander thereby symbolizing the formal change of command. [Behind the scenes, there are written orders issued assigning and reassigning the appropriate officers. Unless somebody has gotten summarily relieved, you know about the change a long time ahead of its actual occurrence.]

There are a couple of speeches and then everyone goes back to work.

Sometimes, if you’ve been the company commander for a long time it is quite emotional and if you’ve been a good one the officers, sergeants, and troops buy you a nice present. The best gift The Boss ever got was a WWII vintage demo knife mounted on a plaque with a sentimental inscription. [I wonder where that damn thing is.]

In business, new CEOs

Businesses change their CEOs in a slightly different manner.

The manner in which the change takes place will color the nature of the transition and underpin the potential for the long term success of the incoming CEO. If it is done with drawn swords then there will be a low probability of any continuity being built between the former and new CEOs. Amongst professionals, this should not happen but, alas, it always does.

Here are some things that should happen if it is done correctly:

The incoming CEO should know exactly why the outgoing CEO is “outgoing.” Check the outgoing CEOs version v the board chairman’s version of things. Know what it takes to get fired or replaced in this company. Know this.

The outgoing CEO should write a Continuity Memo outlining all the “in progress” and current issues that are going to have to be attended to by the incoming CEO. This memo should identify all short term temporal issues — the “hair on fire” issues.

This can run to several pages and should take a few hours to complete. Pertinent files — paper or digital — should be identified, attached, linked as appropriate. The Chairman of the Board should receive, review, and approve this document as part of the outprocessing of the former CEO. No severance payments until this is finished.

New CEO should sit down with the former CEO and go through it. Make sure you know if the building is on fire before you arrive for your first day of work.

The outgoing CEO should introduce the critical staff — COO, CFO, C suite folks, operating division heads — personally to the incoming CEO. The staff is going to want to see the dynamic between the former and new CEOs.

Learn who the former CEOs favorites are.

The incoming CEO should have an individual one-on-one “meet and greet” as quickly as possible with each of his direct reports. This is a 3 step process, so don’t try to write War & Peace while eating barbecue. It’s not fair to the barbecue.

The incoming CEO should immediately review the organizational documents of the company and ensure she knows what they say and mean. Take particular care to understand the cap table and how it relates to board composition.

The incoming CEO should pour through the financial statements, the audit, and budgets/projections/forecasts. Know the numbers and talk to the auditors. [Likely the last and only time you should be talking directly to the auditors, not outside accountants, auditors.]

The incoming CEO should immediately review the board charter, the board committee charters, and get some intel as to who is on the board. [New CEOs — if you’ve been recruited by a boardmember to this position know the board picked the guy most likely able to make the sale. He is unlikely to fairly represent the actual tone or nature of the board.]

Meet all the board members and take their measure. These are the guys who will one day fire you. Know this. Deal with it. Get comfortable with them.

Get it in writing. New CEOs should demand an Employment Agreement. This will be the high point of your negotiating power. Get it done now. Make sure your agreement anticipates being fired or replaced cause, guess what, that’s how YOU got the job. Big consideration.

Make sure your Employment Agreement addresses the powers you have received, to whom you report, change of control provisions, and mandates annual performance and compensation reviews. Read some Big Red Car on this stuff.

Visit every operating unit in the first month of your ascension to the throne. Better still if you can do this BEFORE you take the job.

Conduct an Anonymous Company Survey in the first two weeks of taking over. Consider this a baseline measurement. Take your time developing this survey. It is important. Read some Big Red Car mojo on anonymous company surveys.

Have a Town Hall style meeting with the HQ staff after you have the Anonymous Company Survey results in hand. Be prepared to answer questions and don’t go home until the last dog dies cause this is your debutante party, new CEO. One chance to make a first impression.

Make it clear as to how you intend to assess performance and if the company does not have a robust performance appraisal system, develop one immediately. This is always a problem. I have never seen a company which could not improve its performance appraisal system and the ability to drive objective attainment through performance appraisal is huge. Do this.

Evaluate the company’s compensation v market comp. This will turn out to be a big thing.

Get with your senior HR person and start chatting about the company culture but not before you’ve reviewed the company handbook and policies. [No company handbook, onboarding process, policy manual? Make one. Right away.] New CEOs can gain support from a broad swath of employees by immediately revising bad policy. It is a critical opportunity.

Check with several people as to whether the HR view of the culture is correct. Many times what the HQ thinks is not what the grassroots thinks. A bit of a gap is fine but opposite sides of the mirror is not.

In the first month make a concerted effort to be seen. Introduce yourself, get the names down right, chat them up, and tell them you don’t know everything but you’re going to learn it.

Dress a little nicer than normal. Do not wear your khakis more than one day. Get a haircut.

Get to work early. Be the first one there and park where they can see that. Take the most “humble” parking spot and if there is a sign that says “CEO” on your parking space, take it down and park with the folks.

Make your first board meeting perfect — clear agenda, agenda delivered ten days before the meeting, board book delivered digitally a week before, phone call to every boardmember before meeting, crisp execution at board meeting, lunch or dinner social time with board, immediate board notes/minutes, follow up calls to every boardmember.

Woo your board. Seduce them.

A lot of the first board meeting prep and execution is to set the tone and to discipline the relationship with the board. It is hard, very hard, to correct things after the fact with a board.

Conduct an Anonymous Board Survey after your second board meeting when you have a feel for them and they have a feel for you. Review the BRC mojo on anonymous board surveys.

Buy a lucky silver dollar that is exactly 100 years older than you.

Good luck. If you need any help, ping The Boss. He’ll help you. jminch2011@gmail.com

But, hey, what the Hell do I really know anyway? I’m just a Big Red Car. Be good to yourself. You’ve earned it.cropped-LTFD-illust_300.png

  • Frank Traylor

    Great stuff BRC. Thx!

  • Dear BRC: Can you break some points into what should be done before joining and what can be done after joining? While you are definitely roadworthy, some cars have hidden engine problems and a prospective driver should strive to know as much beforehand!

    • JLM

      .
      In the course of considering a position as a CEO, every thing on the list should come up in some form or fashion. The BRC thinks that prospective CEOs should be very aggressive and overreaching as the instant before hiring is the highest negotiating power you will ever enjoy.

      BRC
      http://www.themusingsofthebigredcar.com

  • sigmaalgebra

    Wow! Likely also a really good check list for the old CEO who wants to remain the CEO! A keeper. Will abstract, index, and save. Thx.

    Gee, I saw relatively little on reviewing the products/services that make the money, the customers, who they are, what their views are, and marketing and sales, and I would have concentrated on those.

    Gee, how might this apply to Donald starting in January?

    • JLM

      .
      The product stuff is not something you can immediately impact as the new CEO. This is about taking charge. Transition.

      In life, you don’t get power, you take power.

      Once you are in charge, you can work the product side of the equation.

      When a new President gets his first PDB (Presidential Daily Brief), his whole world changes. The world does not wait for the new American President to get up to speed.

      BRC
      http://www.themusingsofthebigredcar.com

      • sigmaalgebra

        Thx.

        > In life, you don’t get power, you take power.

        Yes, eventually I heard that that is the situation. And, the times I had power, it was because I had taken it.

        How to know have taken power? Other people start shooting at you, out of jealousy, competitiveness, fear, etc.! Or if they are not throwing rotten eggs at you, then maybe they think you have so little power you aren’t worth the price of a rotten egg!

        The first thing I did at FedEx was write software to schedule the fleet. The CEO, BoD, and investor General Dynamics were pleased, thrilled, really, and a big pile of equity capital and loans were enabled. Gee, I’d just written some software, in a hurry.

        Then it started: (1) A guy I didn’t know chatted with me in the hall and ended by saying “Back at my former company in aerospace, there are a lot of people like you.” Just like me? Really. Wow. Dime a dozen, huh? (2) The guy who had hired me declared me his enemy and tried to cut me out of everything.

        When I was a B-school prof (didn’t want to be, but was as part of trying to be good to my ill wife), the campus computing totally sucked, the school was struggling about what the heck to do, as a grad student I’d just run a successful computing shop so in the first faculty meeting stood and gave a proposal in a few words. That way, I grabbed some power. Then university CIO started shooting at me. We had a shoot out over some disk drive engineering details in front of my Dean, and I won. A year later, what I proposed was running with me as Chair of the committee. Then I was put on a committee to pick a new CIO for the university. Apparently when the CIO shot at me, some people thought that he made a mess in his pants. Then some more people started shooting at me! My department Chair was totally pissed and declared war on me, when we’d hardly ever even talked. He didn’t like a new faculty member getting visible on the whole campus doing things he didn’t know how to do!

        Ah, once I was working on a proposal for our major customer but was sent for a week to try to save a project that was hopelessly in trouble. Hopeless. But I saw a technical gap in the proposal about measuring power spectra of audio signals in the ocean (right, Navy submarine stuff), quickly got smart on measuring power spectra, wrote some illustrative software, called an engineer at the customer, had him over, ran the software, and showed him what the math said could/couldn’t do which were surprising — it was really low frequency stuff, and some of intuition is badly wrong down there. On the proposal, suddenly my work got ‘sole source’ for my shop. So, I’d grabbed some power. Then I got a new job, and the head of the shop got a bit drunk, with my leaving was afraid of his job, and called me trying to get me to stay. In the end, he said that I could resign “with prejudice” whatever the heck that meant! I went on staff at Georgetown U. and also taught computer science.

        Later the Navy wanted an evaluation of the survivability of the US SSBN fleet under a special scenario of global nuclear war limited to sea, with results in two weeks. I saw some work by B. Koopman and saw a continuous time Markov process, wrote out the math, typed in the software, ran it, and had the results on time. A parallel project flopped. So, I won and likely grabbed some power. In addition some work in the shop had been doing a lot of digital Monte Carlo work, that is, with random numbers. Well, one of Knuth’s books has some really good recipes for random numbers, e.g., from where they need a lot of random numbers, Oak Ridge National Lab. So, in assembler, I programmed some of Knuth’s recipes. I used those in my SSBN work, and another project also used that assembler code. When they reran some of their old work with my new random number generator, they got materially different results. They got afraid of my contribution, essentially afraid of my power. Soon, I was no longer wanted in the shop — I’d done too well, gotten too much power!

        So, to get power, have to grab it. Then, sometimes can get shot at by others, sometimes by ALL the others!

  • nice post.

  • Really?

    Excellent process BRC! As you mention in HR review the understanding and reality are often differing. I would add that the same is true for the Board understanding of baseline and true baseline by function. That first operational Board meeting is important to establish what you understood in your evaluations with Board members and what you found in your first engagement with the staff.
    The old “you can’t get there from here if you don’t know where here is” applies to the Board. This is a moment to reset any traps that may have been set in expectations before your hire!

  • JLM

    .
    The Big Red Car outlines how CEOs should be changed out. It is an interesting read.

    http://themusingsofthebigredcar.com/changing-ceos-process/

    BRC
    http://www.themusingsofthebigredcar.com