& COMPANY ON MANAGING LEADERSHIP TRANSITIONS
HSIEH AND STEPHEN BEAR
McKinsey Quarterly, 1994 Number 2
new manager brought in from the outside. A key retirement. An executive waiting
in the wings who finally gets his or her chance. The splitting of the Chairman/CEO
role into two separate positions. The departure of unsuccessful contenders. Beyond their obvious effects on individual careers, such changes are also
opportunities - often not fully exploited - to bring about significant organizational
change. Never more so than when the change takes place at the very
top with the appearance of a new CEO. These "appearances" are
common as more industries face discontinuities and more stakeholders
assert their rights. Indeed, nearly a quarter of the CEOs of Business
Week's top 1,000 companies have turned over during the past two years. How
can companies - and new incumbents - better leverage these stressful periods
to break out of the performance-limiting aspects of the established order?
an oil company president put it best: "This place has had three presidents
in five years. My predecessors all made the mistake of trying too hard
to get things back to normal. The organization took it as an endorsement of business-as-usual
when a lot had to be changed. When I came in, the place felt rudderless.
They were watching me to see if I would break them out of this rut. I
did." Appropriately so. CEO transitions offer a natural, albeit brief, opportunity
to shake up the status quo and change it fundamentally.
no mistake, even in the most flexible organizations, an entrenched status quo
rapidly develops. Everyone knows what is important; who has influence; what success
really means; which roles have prestige; which protocol must be followed to
get things done; what constitutes a career-limiting move. On the positive side,
this shared knowledge, when replicated all the way down the line, promotes a
certain efficiency. It is clear whom to call; how reports should be done; which
meetings to attend; what is kosher to ask; and where the land mines really are.
transitions disrupt the efficiencies of the "status quo" and sever
the web of
familiar practice. CEO transitions disrupt these efficiencies and sever the
familiar practice. Connections are broken; intelligence flows stop; secure power
bases are thrown up for grabs; uncertainty takes the place of continuity; and
what was once an easy and standard route to follow becomes a voyage into uncharted
waters. Within 100 days or so, however, a new order usually gets established
and things settle down again. Or, in the absence of strong leadership,
the old order reasserts itself. Either way, such periods of genuine transition
time when all is in flux,
nothing is fixed, the status quo is interrupted,
and an organization buzzes with the expectation of change - are painfully
they are also - if properly grasped and managed - a unique opportunity to
company's rhythms to the requirements of the future. The general readiness
learn, and act is at its height. So is the willingness, during this honeymoon
phase, to defer judgment and give new incumbents the benefit of the doubt.
These are, then, times of fluidity during which new performance expectations
can be established more easily and new organizational norms are cast.
They are also when the foundation stones get laid upon which a CEO's legacy
will be built.
a series of discussions with CEOs who have undergone such periods of transition
and from our and our colleagues' work with public- and private-sector leaders
around the world, we have distilled six lessons about how to make the best
use of these periods of fluidity.
Start with where you want to end up
are trained to keep their eyes on the finish line, but it is easy to be
distracted by all the excitement as a race gets under way. CEOs who are new to
their jobs can also get distracted by the day-to-day urgencies of running their
business and by their felt need to hit the ground running. Everyone tells them,
"When in doubt, do something." But looking back years later, they
this peremptory action bias. As the CEO of one media company acknowledges,
"I expended a lot
of my - and my organization's - energy on areas that should
not have been priorities."
retrospect, many corporate leaders wish they had started with a much clearer
of where they wanted to end up. In
retrospect, many corporate leaders wish they
had started with a much clearer sense of where they wanted to end up. The lesson
is painful. "I've learned," one reports, "that you have to be
very clear about
your end goals because, without that clarity, you waste a lot of time, money,
and goodwill taking detours, making mid-course corrections, and reversing your
earlier decisions." Some do not survive such reversals or corrections.
As a CEO
who lost his job after only 18 months put it, "For a while, I thought I
by attacking the most urgent issues a couple at a time. But I was soon consumed
by the fire that I was trying to put out."
Focus on legacy
who do make the transition successfully often focus, from the very beginning,
on the kind of legacy they want to leave behind as a way of setting their
sights on the finish line. When they think about their potential legacy, many
CEOs first look to business goals: "I want to have downsized the
focused it more on the core business before I leave"; "I want to
prices to pre-1987 levels"; "I want to build a management team
will - take this company forward." Others dwell on personal considerations:
"I'd like to get invited to stay on for another three years"; "I'd
like to have developed a second pursuit by the time I am 55."
these aspirations are legitimate. By themselves, however, they - and many
like them - do
not go far enough, do not cover enough ground. They address underlying cultural
issues much too infrequently. As one CEO reflected, "There is nothing more
important than to leave behind an organization that feels confident of its future
and feels like a winner."
legacy goes well beyond aspirations for financial or market position. It
perceptions in the minds of the leader's many constituencies. We have found that
an effective way of thinking about a legacy includes: the condition of the organization
at the time a leader departs; the prevailing focus of its people; what
the leader personally stood for; and the organizational climate that grew out
of the leader's style and actions. Thus defined, a legacy goes well beyond aspirations
for financial or market position. It deals, as well, with perceptions
in the minds of the leader's many and varied constituencies. And like
all issues of perception, it deals with things that are more black-and-white
CEO of a large US industrial corporation had created a record of major improvements
by concentrating primarily on downsizing and defending against further
market share erosion. However, the company still lagged world-class industry
leaders and the climate left behind was perceived as being riddled with uncertainty
and shaken confidence. By contrast, when Sam Walton of Wal-Mart died in
1991, he left behind the most successful retail operation in the United States,
a personal reputation for thrift and attention to detail, and an organization
marked by high energy, a strong performance orientation, and great confidence
in its continuing success.
fair test of legacy-related aspirations is to ask, "What would be my
regret if I had to leave without achieving it?" A fair test of legacy-related aspirations
is to ask, "What would be my number one regret if I had to leave without
achieving it?" Due diligence, however, requires asking as well,
"What is the
number one thing that could derail what I hope to achieve?" Is there,
a capable next generation of leaders to carry on - and build on - the present
the same time, of course, a new CEO must take into account any personal
that will impinge on the time and energy available for business
Here the questions can get quite personal. At this stage of my life,
much sacrifice on the personal front am I willing to make? How much time
I carve out for personal health or physical conditioning? For specific
members? For community service? For outside activities like involvement
regional economic development forums, special government taskforces, or CEO
that might also, even if indirectly, benefit the stakeholders of the corporation?
The challenge is to make these personal aspirations explicit and think
through how they interact with all the other elements of a hoped-for legacy.
Get clear on the lay of the land
are many unwritten realities that add up to the unique landscape that characterizes
each organization. Who belongs to the power cliques? Who has credibility
and why? How do the subterranean communication channels really work? What
do people hold dear? How do decisions really get made? Which are the constraining
scarce resources? How do they get allocated?
new CEOs instinctively know they must explore the organizational terrain for
unexploded land mines. Few, however, delve deeply enough into how the organization
really works or how different people will react to different leadership
actions. Even fewer develop the full range of insight needed to use all
of an organization's dynamics to achieve greater impact.
is dangerous to just find out where the land mines used to be. That doesn't tell
you where the new booby-traps are planted". This, of course, can be treacherous
ground. According to the new CEO of a manufacturing business, "It is dangerous
just to find out what people's strengths and weaknesses are and where the
land mines used to be. That doesn't tell you how things really work or where the new booby-traps are planted. I had to get a sense of whether - today - a particular
move would trigger a dynamic chain reaction that might blow the place up."
reactions, started by new leaders, can also have beneficial effects. Another
new CEO, for example, went to work early every day during his first three
weeks at a transportation company. His intent was to start the day early enough
to read up on the company's business before staff members showed up at 9.00am.
Coming in around 7.00am meant that he literally had to turn on the lights.
By the second week, he noticed that more and more people were coming in early.
By week 3, someone always arrived before he did and turned on all the lights.
chains of influence mean that there are possible economies of effort in changing
an organization's dynamics. When the new CEO of a large US railroad took
over the reins, he wanted to move immediately to make the indulgent corporate culture far more people- and performance-centered. Among the first
he did was close the executive dining-room and kick executive offices out of
their prime ground-floor space so they could be replaced with a fitness center.
By the time he announced that one-third of corporate staff would be cut, the
organization had already gotten the message: change was real and more was coming.
never find out where all the skeletons are from the inside."
it is not difficult to build a good working model of these dynamics - if a
new leader systematically explores the landscape, talks to a representative
people both inside and outside the organization, and asks the right questions.
As a new division president of a paper company told us, "You never find
out where all the skeletons are from the inside. I often get more insights into
the culture and politics of an organization by talking to customers and
army major we know always made it a point to take a week of personal time to
unofficially, his next posting before he actually assumed command. That way,
he found out in advance not only what the morale of the troops was, but also
what they really held dear - things like better rations and avoidance of extra
weekend duties. He also found out the strengths and weaknesses of all the officers
in that command, as well as the one whom the troops respected the most. On
the first day of his official command, he would ask for that officer to be his
second-in-command. He would also promise his troops (and then deliver) better
rations and duty-free weekends in return for playing by his rules. He got
which expectations to change, which to honor, and which to defend.
CEOs face the daunting challenge of balancing multiple expectations. Every stakeholder
group has expectations, and available time, money, and other resources
seldom, if ever, match aggregate demands. These expectations, moreover,
often clash, and conflicts of interests arise. Worse still is the discovery
that promises have been made or special deals agreed to by predecessors.
Never mind the fine print, there is the implicit spirit of the "contract"
to contend with.
trouble I had was with expectations. They were there, they were real, and would
have come back to haunt me if I had pretended that they were not. It was easy
enough to see what the formal obligations were," said a CEO of his transition.
"The trouble I had was with expectations. They were seldom written down,
and my senior managers were not close enough to the troops to know what they
were. Even when I ferreted them out, my managers would deny that they were legitimate.
But believe me, they were there, they were real, and they would have come
back to haunt me if I had pretended that they were not."
CEOs often have a hard time separating legitimate obligations from ingrained
unbridled expectations. Somewhere along the line, these unchecked expectations can
easily turn into obligations. Whether it is a promise of job security for employees,
the promotion prospects or role definition of particular executives, or
the size of this year's bonus packages, new CEOs often have a hard time separating
legitimate obligations from ingrained but unbridled expectations. One CEO
explained how hard this is. "The expectations that I was given by my predecessor
and the board were terribly vague. 'You should be able to turn it around
in a year or so,' they told me. And 'be sure not to give in to union demands.'
I really had to dig hard to find out what caused them to believe that these
expectations could be satisfied."
transitions inevitably give rise to new expectations as well as to
about existing ones. "Profits are down and they just fired the CEO. Is
job secure with the new CEO?" "He brought in a new VP Marketing
When is the next shoe going to drop on the rest of the marketing
"This guy [the in-coming CEO] is notorious for cost-cutting. What
happen to our tradition of paying workers at the 75th percentile of the
the uncertainties created by the fact of transition at the top, many
feel compelled to move quickly to clarify and address the expectations
have of them. At times like these, however, they need to be aware of two
of problems that can haunt the rest of their tenure, if not damage their
first has to do with the indiscriminate upholding of expectations. In the
expectations at a point when employee anticipation of - and likely
understandable interest of assuaging fears and removing uncertainty,
new CEOs treat all existing expectations as obligations and vow to uphold
across the board. In so doing, however, they squander a unique opportunity
of - change is highest. This, of course, locks in the status quo.
CEO of a medium-size enterprise with three related businesses lamented about
missed opportunity to reset expectations when he was first appointed. The
order was that divisional presidents were left alone to run the business.
across the businesses were rarely exploited because the three
get divisional managers to focus on potential synergies - long after
operated as fiefdoms. Without thinking through future needs, the new
reaffirmed the divisions' independence. Two years later, he was still trying
had pulled ahead by dint of their integrated strategies.
in transition often feel compelled to make early promises on which they
cannot deliver. The second
problem, which often follows the first, is
promises. CEOs in transition often feel compelled to make early promises
which they ultimately cannot deliver. Why? They bow to the sentiment of the
around them at the time. Wanting to be liked and accepted, they let good
cloud their business judgment.
CEO of a North American company felt it was urgent to allay employee
one from either company would lose a job as a result of the merger - a
following a merger with a major competitor. He quickly announced that
was irreconcilable with harsh industry realities and, therefore, clearly
Three recessionary years later, he had to face up to two years of
that eliminated thousands of jobs. Employees who had lived with an
of "life-long" employment, which was strongly reinforced by the
promise of no firing, were traumatized. The CEO retired shortly after
ever recovering from the stigma of his "broken contract."
5. Get your real team together
new leader has to start with inherited players and their hidden agendas,
aspirations, possible mistrust, and questionable loyalty. Each
begins with an inherited team. Like it or not, a new leader has to
with inherited players and their hidden agendas, uncertain aspirations,
mistrust, and questionable loyalty, as well as the history of relations
them and between each of them and the rest of the organization. Sorting
these dynamics early is never easy but always essential. As one CEO
"People knew that I had to get board approval to change the top team
that the board was going to question why we had to move so quickly. So my
to institute a new agenda was limited until I had key board members on my
That took me damn near six months."
the players and the team
the first challenge is to gather a perspective on each of the players
on overall team dynamics. Beyond probing for each person's competence,
credibility, and the like, a new leader must assess the personal
each has on the team and on the rest of the organization. Is she a
influence on the people she works with? Is his concern for
in balance with his concern for the collective good? Does she
or merely exploit her peers and subordinates? Do his actions, not just
words, uphold the values I hold dear? Is she a good role model for the kind
leadership this company needs?
also need to be asked about the team and the way it works. Does it
the complementary skills I need? Is it small enough to function
Does it have common aspirations about performance? How does it work
Beyond the immediate group, who else is very much a part of the team?
choices are often the most dramatic - and arguably the most important - decisions
a leader in transition has to make. Though full of difficult tradeoffs
and rife with emotions, even the toughest calls are better made during the
transition, when the situation is still fluid, than later. Much better to start
with the right slate: the opportunity costs of having to change horses in mid-journey
are too high.
leaders have their own approaches to making people judgments. The raw ingredients,
however, are similar: the person's strengths and weaknesses, the impact
of each choice on the team and the organization, and the requirements of the
business. There is no magic here, just a series of three basic questions:
configuration comes closest to putting the right people in the right places?
Combining which roles into which leadership positions will maximize the company's
leadership capacity? And, of course, what personal role should I play?
new CEOs concentrate on roles that leverage their proven strengths. Otherwise,
they can silently fall prey to the roles that others expect them to play.
"I need to cover government relations," said one newly-appointed
my predecessor has always done it." This sounds logical, but his predecessor
had had the savvy and stature to be an industry statesman. Not him. New
leaders may find it difficult to define what their true strengths are for a role
to which they have not previously been exposed. It may be easier to ask: What
am I not good at doing? This kind of soul-searching can also help them put in
place managers able to compensate for their particular weaknesses.
CEOs seldom have the luxury to move as many people as they want as quickly as
they would like. Although the freedom they enjoy to carry out major people and
changes will vary by situation, new CEOs seldom have the luxury to move as many
people as they want as quickly as they would like. In the short term at least,
they often have to make compromises on which people ought to go in which places.
This is tolerable - as long as these compromises boost overall leadership capacity.
The only caveat is that these compromises should not be forgotten down the
road as lower-level talent matures and outside candidates become available.
newly-installed CEO at a financial services firm responded to this problem
classifying his executive team, through careful assessment, into three categories:
keepers, watchers, and goners. "Keepers" were clearly major assets
he quickly informed of their status even before their formal roles were decided.
This reduced their anxiety and minimized the risk of losing them. "Goners"
were major liabilities, who subtracted from the overall leadership capacity.
Though painful, visibly - and quickly - removing them would unleash frustrated
energy in the organization. Finally, "watchers" were people who
major assets if they could address one or two deficiencies within a reasonable
time, say 12 to 18 months. Meanwhile, they represented a net addition to
the overall capacity of the team.
what if a new CEO has no flexibility to move on the problem cases? What if the
team is still too large and unwieldy? In such cases, leaders often
the power of informal devices like the use of forums and teams to
overall effectiveness. It may help, for example, to change the
practice on when and with whom the CEO meets one-on-one, what the
is when the whole group meets, and when subgroups of two or three get
to address specific issues.
latter point may be especially valuable if a new CEO wants to avoid the
circle, or you are not. Using multiple, issue-specific teams - each made up
of setting up an exclusive inner circle. This is most likely to
when there are only two circles: either you are part of the preferred
different permutations and combinations of the larger group - circumvents
and boosts the whole group's effective capacity. A CEO who got really
by this approach went a step further: "Mix them up and throw in a few
tigers and whipper-snappers as chasers. Then get out of the way and watch
important as making tough people choices is the decision about when and how
communicate them. Should I do it sooner rather than later? Should I leave
to read the tea leaves and figure it out? Should I have explicit,
conversations with the individuals affected?
and sooner" is usually better than "implicit and later". Again, there is
one right answer. One CEO even told us, "Sure, you've got to think
your people. But that doesn't mean you have to act immediately on
The most urgent need is to move on those you'll need to bring in." Our
however, is that "explicit and sooner" is usually better than
and later." Anxious people during transitions are quick to read
often not intended, into subtle shifts in role or resource allocation.
is in favor? Who is down and on the way out? Left fuzzy, these signals will
political jockeying, whip the rumor mill into a frenzy, and tie up a lot
otherwise productive energy in an endless guessing game.
financial services CEO described above moved swiftly - within 30 days of his
decisions got made, within the first 60 days. At the same time, he
appointment - to
reassure the "keepers." He acted on all the "goners," as
all the "watchers" why they were on probation and what they had to
by when. Each had the chance to buy into the challenge or take an exit
instead. At first blush, his approach may appear blunt, almost brutal.
even those executives who were terminated thought he was firm but fair and
appreciated his explicitness.
Focus on a few themes
everything is a priority, then nothing is a priority. It may sound trite. But
we do it to ourselves all the time. At times, there seemed to be 200 'critical'
things to do. Even when I pared the list down to 30, I still felt swamped."
The sentiment is familiar. But so is the appropriate response, even during
the hectic days of a corporate transition: the best directions are simple directions.
When things get overly complicated, it is easy to get lost - and to lose
organizations are provided with a clear and simple road-map, they can move with
purpose and focus, leaving room for individual imagination and experience to
fill in the details. But when they are deluged with long lists of priorities
complex tactics dressed up in fancy words, people's eyes glaze over and confusion
reigns. It does not have to be this way. "I gave up a lot of important-looking
things and erred on the side of being brutally simple," observed
the paper company president. "I focused on only two themes - quality
Everyone knew what was important, and that made our energy productive
and kept us in the game."
quickly to articulate a few simple themes feeds an organization's hunger
a sense of what the new order might entail. During transitions, moving quickly
articulate a few simple themes feeds an organization's hunger for a sense of
the new order might entail, which frees it to respond positively to the new
It also provides an overall context so that people can come to grips
everything that is going on. In short, it provides a beacon of stability in
sea of change.
what makes a good theme? How is it different from a slogan? First, of
it must convey the essence of the rational case for the new order. But
must also be emotionally compelling. If it is not, it will not last both
the transition period and through the three to five years it will take
reach the implied organizational goals. The life of a slogan, by contrast,
be measured in days or months, not years.
themes meet the "rule of 3 and 300": three simple but compelling
a theme finds its richest meaning as it energizes - and gets enriched
can legitimize and sustain up to 300 organizational initiatives. More
energized by - the ongoing, day-to-day actions of a broad cross-section of
In fact, one CEO described effective themes as meeting the "rule of 3
300": three simple but compelling themes can legitimize and sustain up
separate but consistent organizational initiatives.
surprisingly, the themes best able to mobilize large numbers of people tend
be value-laden. The new CEO of a natural resources company, for example,
the imagination of his people when he enunciated the dual themes of
and "business-like thinking." Both readily developed personal
everyone in the organization. Front-line people recognized in them an
of rapid decisions that sensibly tried to balance economic gains
employees, shareholders, and the communities in which the company
Staffers recognized a clarion call to cut red tape and move with
and more purposeful speed. The essence of the new order became clear: we
become fast-moving, tough-minded, and responsible businesspeople to stay
of the game.
60 days of his appointment, the new CEO of an industrial company called
unclear on how far or how fast to change. As a result, promising themes
his people to become more "performance-oriented, bottom-line
who relied on "simplified business processes" and "strong
They responded well initially, but never broke out of their old ways of
things. The reason? Key initiatives were underled, and expectations
turned into hollow slogans.
Balance between short and long term
are always hectic, challenging times. The pace is intense.
demands attention. Daily calendars are filled with countless urgent
immediate tasks. In such an environment, it is not surprising that important
priorities often slip out of focus. Even with the best intentions in
world, it is not always easy to tell what must be done now and what can be
later. It is hard to strike the right balance. Indeed, a common refrain
many new CEOs is "There were so many opportunities to add value, that
mistake was immediately to turn the place upside down based on flawed
new CEOs gravitate to near-term urgencies, soaking up precious time trying
believing that the organization should do - and think about - nothing
keep the wheels from falling off Few new CEOs get the balance right. Most
to near-term urgencies, soaking up precious time trying to keep the
from falling off. This is perfectly understandable. A few deliberately
off for the mountains to ruminate on paths to the future, leaving the
to wonder what might eventually come down on them. This is
too. As is the focus of still others, who embark on cost-cutting
before it takes out a big chunk of costs. This, of course, leaves everyone
worry about what will be at the end of the rainbow once the raging storm of
has finally subsided.
however, is important - and possible. Two simple principles might help.
people will be more enthusiastic about near-term sacrifices if they know
a better future lies ahead. New leaders must take the time to spell out,
if only thematically, what constitutes that better future. If they are
about the kinds of capabilities required in the new order, their people
be better able to avoid cutting out muscle along with the fat. The
mentioned financial services CEO, for example, employed three themes
his transition: "Low-cost producer," "Best marketer of
selected target customers," and "Superior branch network."
the need for retrenchment and aggressive cost reduction in those
in which they could be the low-cost producer. The second and third
the uplift, the redeployment opportunity for people's energy.
second principle is that movement creates opportunity. Some CEOs focus on a
new opportunities - to explore.
cost or restructuring theme because they cannot see any other
actions they can take. Even in this unfortunate circumstance,
it is vital for them to communicate the future-building experiments
undertaken. No guarantees are needed, just openness about what is being
Investigating a strategic alliance, contemplating an industry
or reexamining fundamentals of a business generates movement
that, in turn, may open new possibilities not imagined before. This is
an argument in favor of movement for the sake of movement. Only a reminder that
there is an upside to living in a turbulent world: there are always new
may our ends by our beginnings know," wrote Sir John Denham nearly four
ago. He might just as easily have been writing about today's CEO
Hsieh is a director and Steve Bear is a principal in McKinsey's Toronto