When Performance Declines: The Case for Acting Fast on CEO Intervention

Viewed in Spencer Stuart

Global executive search firm Spencer Stuart’s expertise in executive and board searches is pretty much beyond reproach. Since its 1956 founding, it has grown to 57 offices in 30 countries and handled executive and board searches for some of global business’s most iconic brands (and even the U.S. government).

Now in its sixth decade of business, the Chicago-based firm has accumulated abundant institutional knowledge of value to corporate board and executives.

1,850 CEO transitions

In this report, it imparts some of that wisdom after conducting a deep dive into lessons learned from chief executive officer (CEO) transitions. Spencer Stuart evaluated 1,850 such transitions over a decade between 2007 and 2017 along with the performance of each company’s stock for the two years preceding and following the CEO transition.

Swift intervention is almost always the best course of action

Its primary finding from this assessment should prove hugely instructive for corporate boards: When the performance of a company’s CEO begins to slip, the swift intervention of a board is almost always the best course of action.

Procrastination is often tempting

While procrastination or wait and see approaches may prove tempting in these cases, this extensive evaluation of nearly 2,000 CEO transitions found that such delays actually prove almost universally detrimental to companies, allowing obvious performance deficiencies to snowball and ultimately creating turnaround and recovery challenges that prove vastly more difficult than had boards intervened earlier.

The longer boards take to act when company performance declines, the harder it is for businesses to improve—and many never do,” this Spencer Stuart report concludes.

Acting quickly is challenging

When a company begins to struggle, many factors can contribute to a board’s failure to intervene in an expeditious manner, including  the competing and multifaceted functional roles a board serves, and sometimes the lack of consensus among the board itself about the performance or the appropriate intervention warranted. “When company performance lags, the board’s loyalty to the CEO, involvement in the approval of the plans/budgets, uncertainty about the signals, and lack of options can make it difficult to act quickly,” this report contends.

Hard and soft performance metrics

Boards seeking to keep corporate performance on track need to act pro-actively and in multiple ways to avoid allowing problematic performance to snowball.

Pro-active CEO succession planning

This includes maintaining and managing from a broad range of both hard and soft performance metrics (“a dashboard”), “regularly and rigorously” discussing CEO performance, communicating directly and forthrightly with a CEO about performance slips or deficiencies, and consistently maintaining pro-active CEO succession planning.

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