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The Life Cycle of a CEO— Claudius A. Hildebrand & Robert J. Stark

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Introduction

In fact, Dave hadn’t been the first choice for the CEO position, or even the second or third choice. Word was five others had been offered the job before him. What’s more, a couple of years earlier he’d been unceremoniously fired from his position as divisional president at a leading competitor. No one would have suggested from his educational background, either, that he was CEO material. Not only did he not have a degree from an elite school, but it also took him six years to graduate. He hated college and he’d dropped out for a time.

As Dave’s first year in the CEO seat progressed, the sneering assessments of that Florida night prevailed on the Street; the company’s stock slid 40 percent.

Confirmation bias may lead to seeing current difficulties in the guise of past experience, which can encourage a CEO to dig in on a flawed course of action. Our research shows that a higher proportion of repeat CEOs compared with first-timers were ousted in this stage, by almost double, possibly demonstrating their overreliance on past experience.

Another factor at work here, though, is the status quo bias, a powerful and widespread psychological force in business. The concept was introduced by researchers William Samuelson and Richard Zeckhauser, who showed in studies with many kinds of decision-makers, including managers, that “when making an important choice, people are more likely to pick the option that maintains things as they are currently.” When you’re enjoying success, your status quo bias is reinforced, which might be just fine. But given that after five, six, or seven years, market conditions will surely have evolved, it usually won't be fine to stick with the status quo later. When responding to those changes would involve making a substantial alteration to or even reversal of a winning strategy or to operational engineering you have orchestrated, the status quo bias makes recognizing the need for change and making the case for it to your team and board a good deal more challenging.

Advice on combating the status quo bias by methodically rethinking business assessments and gaining perspective from outside the firm is not new. But the problem is that far too few leaders develop a rigorous and continuous discipline of doing so. And if CEOs don’t impose that discipline on themselves, nobody else will.

The imperative to challenge yourself becomes more difficult to achieve the longer you have been doing the job successfully. Nigel Travis said, “Being a CEO for longer is tougher because you have to find ways to keep improving.” Some CEOs recalled feeling less engaged in this stage, with boredom creeping in. “When you get into years six to ten, the intellectual stimulus is less,” one shared. “You come in with lots of ideas,” another commented, “and then run out of them.” Someone else said, “Years six to ten is a period of time when the luster is off the rose and what was new and exciting is no longer new and exciting.

The merit of getting to know prospects to choose a good successor was evident in Charles’ case. He’d risen to the top of the heap of candidates through a long and rigorous process during which the board had gotten to know him well. They’d been presented with a wealth of information about his accomplishments and leadership talents, and they felt confident he was right for the job. But then he totally whiffed his interview with them by showing up in the manner of a direct report rather than speaking to the directors as a peer. He didn’t come across as the authoritative leader they could rely on to be forceful with them or to make the tough calls and bold moves that would take the firm where it needed to go. They were really taken aback, and they began to reconsider an external candidate.

But all that they had learned about Charles over the prior five years ultimately prevailed. Because of the experience they had with him, they agreed when we urged them to give him another chance to present. We gave him feedback and shared what the board had said about his prior performance before them. He took the feedback well and returned very much as the in-command CEO the board wanted to see. This ability to take feedback and adapt gave them even more confidence that he would continue to grow once in the role. Charles was appointed and has had a highly successful tenure.