How Insider CEOs Succeed

3rd March 2020

LeadershipComments Off on How Insider CEOs Succeed

When an organization taps one of its current executives to be its new CEO, the transition might seem straightforward. The promotion is often the culmination of years—maybe decades—of hard work. CEOs who come from inside the company have probably served in the C-suite or run a large division before, so they have relationships with everyone in top management and the confidence of the board. They know the organization, its history, and its culture. They understand its strategy and might have been intimately involved in developing it. They’ve established credibility and support. You’d think, then, that they’d have an easier time adjusting to and excelling in the job than external hires would.

In reality, chief executives who have advanced from within face hurdles that are comparable in magnitude, albeit different in character, from those that externally hired leaders confront. Through our research and our experience working with newly promoted CEOs, we have identified insiders’ five key challenges: operating in the shadow of their own past; making early decisions that surprise and disappoint supporters; overseeing former peers; pacing change; and managing the outgoing CEO.

These issues show up in varying degrees for every inside CEO appointee. In this article we offer advice for navigating them, drawing on interviews with dozens of internally promoted chief executives. This is a primer not only for leaders who want to attain the very top job but also for outgoing CEOs, HR departments, management teams, and boards that want to offer support. And some of the lessons can also be applied to succession at lower levels of the hierarchy.

Five Challenges

In 2018, a PwC study of CEO turnover at 2,500 of the world’s largest companies found, 83% of successions involved internal candidates. The implication: While external hires tend to get more attention, most companies still typically promote CEOs from within. Internal executives are known commodities, theoretically carrying less risk. Yet because they’re “safe bets,” the specific challenges associated with their ascension can be overlooked.

Operating in the shadow of their past.

One assumed advantage internally promoted CEOs have is that people in the organization know them. They come with established track records, relationships, and leadership and operating styles. But that can mean that employees, direct reports, and board members have built-in expectations of them. “Nobody goes to CEO school and becomes CEO. Everyone comes from somewhere,” says David Verinder, who spent four years as Sarasota Memorial Health Care System’s CFO and four as its COO before assuming the organization’s top job. “And with it there’s a perceived bias—oh, he’s the finance guy who doesn’t care about quality and only cares about the checkbook.”

To head off such assumptions, internally appointed CEOs need to adopt different attitudes toward key business drivers and managing risk than they had in their previous roles. For Verinder, that meant leaning heavily toward strategy and growth planning in his early days as CEO and downplaying discussions about finance and day-to-day operations, where his credentials were already established. “In an effort to be more balanced, you have to lean way over to the area that you haven’t touched before,” he notes.

Harris Pastides, the former president of the University of South Carolina, who stepped into the top job from a post as the school’s vice president of research and health sciences, agrees. After the promotion “I needed to spend energy and resources on other areas to show my commitment to the entire university, not just my previous areas of responsibility,” he recalls.

When Richard Wilkerson moved up from a role as executive vice president of human resources at Michelin North America to become the chairman and president, in 2008, many of his colleagues were surprised. He had previously led several manufacturing units and knew people at all levels of the organization. “But HR is not a natural route to the most senior role,” explains Wilkerson, who retired in 2011. That’s why he took special care to reintroduce himself: “I made sure that I was very visible from the start and promoted my vision of servant leadership across the company.”

Escaping the shadow of your past requires a shift in mindset, adds Lydia Jumonville, who transitioned from CFO to interim CEO and ultimately to CEO at Colorado-based SCL Health in 2017. “Really visualize yourself in the new role early on,” she advises, and “consciously see yourself moving out of the old one.”

Making tough calls that disappoint supporters.

Once in office, promotees quickly realize that they will have to make decisions and trade-offs that displease some of the people who helped them advance. One CEO—who had the support of “every board and management team member” during his transition—told us the honeymoon didn’t last long. “It took just three days before I was confronted with a significant decision that made clear to some that I would support a vision that was different from their personal vision,” he explains.

Frank Longobardi, the former CEO of the New York–based accounting firm CohnReznick, agrees that consensus is rarely possible: “If I can make 80% happy with a given decision, then we’re all right.”

These situations can be particularly tricky when new CEOs let down or are at odds with allies who backed them for the role and expected to benefit from their promotion. But CEOs can’t represent a narrow set of interests or favor friends and must avoid any perceptions that they do. As one CEO put it: “I ‘grew up’ in our largest operating division. It was important for me to invest in getting to know our other divisions. I knew my decisions would be viewed through the lens of favoritism if I didn’t invest in building bridges.” To shift your mindset, try imagining that you’ve been hired from the outside and are coming into the company with fresh eyes.

It can also be difficult for new CEOs to be objective about things they helped shape or championed in previous roles—for example, the strategic plan or major initiatives such as acquisitions. When Andrew became the CEO of WittKieffer, he had to step away from vetting an enterprise customer relationship strategy that he had helped craft in his previous job as managing partner and chair of the firm’s health care practice and was personally invested in.

Wise new CEOs set up in-depth, objective business-review processes and engage with people who can give them honest, thoughtful assessments of the organization, warts and all. For every longtime trusted ally from whom advice is solicited, one or more people who represent a different perspective should also be consulted. If the new CEO’s experience was siloed in a specific division or market, she or he will need to develop close and open relationships with executives from other parts of the organization.

Leading former peers and being less accessible to former reports.

In nearly all cases CEOs who rose from within have to lead people who were formerly their equals (and on rare occasions, their superiors). The upside of that is knowing team members’ styles and capabilities well. In an ideal situation, everyone might also be fully supportive of the promotion.

But it’s not always so easy. New leaders might be confronted with would-be competitors who lost out on the top job or executives with whom they’ve clashed in the past. At Michelin NA, Wilkerson knew that two close colleagues had also been candidates for the CEO role. “I needed to get to them before my appointment was announced,” he recalls. “I needed to share the news personally and get them on my team. Doing this gained their commitment. They were both gracious and ended up being instrumental in my and the company’s success.”

If you’ve been promoted to CEO, you must take this a step further, rapidly assessing all direct reports and other key stakeholders and beginning to build “your” team. This means “reenlisting” the people you really want to keep through early, direct conversations and figuring out as quickly as possible if there are some with whom you can’t work. Each former peer deserves individual consideration, says Jumonville. “I had to walk the journey with each one,” she notes.

Part of the process entails helping former peers and reports recognize that your relationships with them have changed and probably can’t be as cozy and collegial—or, on the flip side, as competitive or combative—as they were before. You’ll need to explain that personal feelings will play no role in the decisions you make; your priority is to do what’s best for the entire organization. “Now, all of a sudden, you’re making changes that directly impact their jobs—taking their cheese,” one CEO comments. But you can’t let prior relationships cloud your judgment.

Establishing the right pace of change.

CEOs appointed from within often have a long list of things they want to do now that they (finally!) are in charge. They’ve usually had years to learn all about the organization, examine its flaws, and make mental notes about what they would do differently if given the chance. These leaders want to attack issues and plant a flag early in their tenure. However, it’s important to think about priorities and timing before acting on pent-up desires. Why? Because the business might not be ready for the level of change the new CEO wants to drive. This is especially true if the board and the executive team think the company is in a “sustaining success” situation or in need of only minor realignment—the most likely scenarios when an insider is elevated to the top job. There also is the risk of change fatigue (and failure) if a CEO tries to do too much at once.

Verinder admits to being very—perhaps overly—ambitious in his early days as CEO: He built a new hospital, launched a graduate medical education program, and opened a cancer center and a trauma center. “It’s all ended up pretty well,” he says, “but I’m glad I had such a strong team around me.”

When Pastides took over at his university, the school’s trustees wanted to know his plan for change and how quickly he could implement it. But first he needed to be sure the organization would support his ideas. His solution was an expedited four-month strategic-planning process called Focus Carolina, announced in his first month in office. Despite its accelerated timetable, the process drew input from all key constituencies on campus. “I needed a balance between coming in and making change immediately and a long, drawn-out planning process,” he recalls.

Another CEO remembers: “In my previous role I worked very closely with our customers, and I saw many opportunities for us to expand our capabilities to meet client needs. The board was also excited, so we charged ahead. But looking back, the pace of change put tremendous stress on individuals and on our resources. If I had to do it again, I would have managed their expectations differently and introduced the strategic initiatives in a staged cadence.”

This is not to say that there should be no overlap between outgoing and incoming leaders. Wilkerson had a productive six months with his predecessor at Michelin. But “then when he left, he truly left, which was a great gift,” Wilkerson says. “He left town and gave me the opportunity to lead.”

How the Organization Can Help

The primary responsibility for making a successful transition rests with the new CEO, of course. But the organization can and should do a lot to provide support. As happens when most executive posts are filled, external hires tend to get much more onboarding than internal ones. In a 2016 survey of 125 HR executives, Michael found that 41% thought their companies did a good job of onboarding external executive hires. But only 27% felt their firms did a good job with internal executive transitions.

Far too often, insider CEOs are left to sink or swim in their new roles, regardless of how ready they are or the size of the leap they’re making. Externally hired CEOs, in contrast, usually get a lot of assistance, including briefing books, detailed transition plans, and supporting transition teams. There’s no reason why chief executives promoted from within shouldn’t get the same opportunity to succeed and to accelerate their ability to quickly create value. (See “Internal Hires Need Just as Much Support as External Ones,” HBR.org.)

The board, the senior management team, and top executives in HR and communications all have important roles to play. The board should offer coaching or counseling. Research has shown that this can halve the time it takes to get executives to full performance. Tommy Inzina, the president and CEO of the health system BayCare, was initially apprehensive about working with a coach (not one of us, by the way) but learned to appreciate the ability to discuss not just immediate concerns but also long-term industry trends and what kind of leader he wanted to be.

Members of the leadership team need to understand the challenges and the stress facing the new CEO and, where possible, offer both professional and personal support. They can also give extra assistance to the executive who moves into the new leader’s previous role (say, the incoming COO or CFO), to ensure that this person is functioning well and the CEO can turn full attention to more-important matters.

HR and communications executives can help internally promoted CEOs “reintroduce” themselves to their organizations and cement their stature at the top of the hierarchy. They should develop and implement a strategic communications plan that is equal parts internally and externally focused. (See “It’s All About Day One,” HBR, June 2013.) A key element in Inzina’s transition to the top job after having been CFO and COO was something BayCare called “CEO branding,” in which his HR and communications team helped him devise a strategy for how he wanted to be perceived as the new leader: as visible, approachable, visionary, and focused on quality as the organization’s “true north.” The rollout included monthly videos about him and his vision for BayCare, regular town hall meetings, and breakfasts with small groups of employees. The videos in particular were “a big win” in helping people get to know him.

Finally, the organization must provide early, structured feedback from all key stakeholders on how the new CEO is doing. There’s a strong tendency to hold off on offering criticism and give new CEOs, especially inside appointees, time to find their footing. Boards have limited visibility, and executive teams are understandably reluctant to voice concerns until the issues are really serious. But lack of feedback can lead incoming chief executives to make substantial mistakes that undermine their credibility, and the longer this goes on, the more difficult it becomes for the CEO to correct course.

We recommend doing a formal, structured transition-progress assessment 90 to 120 days after the CEO has assumed the role. You can have a coach or a consultant do stakeholder interviews or use a 360-like review instrument supplemented by interviews to get a broad, rigorous combination of quantitative and qualitative input. Regardless, the feedback should be delivered by someone experienced in distilling the key findings and “holding up the mirror” in ways that result in positive change rather than provoke defensive entrenchment of counterproductive behaviors.

CONCLUSION

The success of internal CEO transitions cannot be taken for granted. The sooner a newly promoted chief executive appreciates the challenges involved—and, with organizational support, develops a plan to overcome them—the sooner he or she can get on with the business of leading.

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