Not enough objectivity in C-suite hires, says leading academic
Katie Jacobs, September 23, 2016
C-suite hiring failures can be costly, yet boards often aren't objective enough
Too many C-suite hires are made without using objective analysis and data, leading to failures, a leading HR thinker has said.
Patrick Wright, Thomas C Vandiver bicentennial chair at the Darla Moore School of Business, University of South Carolina, and founder of the Center for Executive Succession, was speaking to a group of HR directors as part of HR magazine’s exclusive HR in the Boardroom programme.
He said that “currently CEO succession is done by anecdote”, with too much emphasis placed on past experience, personal relationships and internal politics. Wright called on HR directors to ensure the process remains objective.
“It’s not about who the CEO wants, not about who you like, and not about who you golf with,” he said. “It’s about the objective data. The CHRO should be able to give candid and objective feedback on the candidates.”
He added that only about half of the organisations the Center for Executive Succession surveyed carried out personality tests and psychological assessments; 51% do personality tests and 47% carry out psychological interviews on external candidates. This drops to 42% and 33% respectively for internal candidates.
Wright said CHROs should be pushing the use of these tools, adding “it’s cowardice not to do so”. He explained C-suite failures are often due to the hire’s personality type, and that “psychopaths” could have been weeded out during the selection process.
HR directors should also work with the board to address “decision biases”, Wright said. He advised educating board members on the various biases they could display; from in-group bias (where they look for someone like themselves) to the “bandwagon effect” where everyone gets behind one candidate without looking for alternatives.
Wright said the board must be looking for “the future CEO, not the current CEO”, and so consider what kind of leader the company will need in five years’ time. However, according to the Center’s research, only 63% of organisations have a five-year business strategy for CEO succession planning.
C-suite hiring failures are common and costly, according to Wright’s research. The Center found only 67% of C-suite hires were judged as successes by the board, with 28% classed as outright failures.
When asked to estimate the costs of a failed executive hire, respondents calculated that the wrong internal hire cost the business an average of $2.82 million in direct costs and $15.11 million in indirect costs. This rose to $4.25 million and $46.22 million respectively for external hires.
“Boards are becoming more focused on risk, but one of the biggest risk decisions they make is hiring a CEO,” Wright said.
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