Take time selecting your CEO

JULY 2010

A management performance expert has called for businesses to spend more time selecting their CEOs, following a 30 per cent rise in demand for CEO evaluation processes in the last quarter.

Chandler Macleod Group (CMG) executive manager for consulting David Reynolds, says companies need to be careful who they appoint to leadership positions and should start succession planning strategies, with increased CEO changes likely in FY11.

“The average tenure of an Australian CEO is around three years but this is largely influenced by changes in major shareholders and economic circumstances so we can expect to see quite a bit of turnover in the next financial year as interested parties place more pressure on organisations to perform,” he says.

“All the research suggests you’ll have more success with an internal candidate, but you have to prepare that person for succession planning, and a leadership role requires different qualities than just being good technically.

“You need a system that prepares the person for the role rather than just one day they’re not CEO and the next day they are.”

He says Brisbane has good examples of leaders such as Domino’s CEO Don Meij and Super Cheap Auto managing director Peter Birtles.

“Both CEOs have got visions, they’re good communicators, they’re passionate and they are also very cognisant of customer needs – Domino’s changed its whole menu offering, adapting its offering to the environment and it was very successful, expanding here and overseas,” he says.

Reynolds has called for rigorous evaluation of existing CEOs, but for roles in transition the option to outsource talent can have its benefits.

“Certainly outsourcing is more expensive as you often need to hire a head hunter, but you can look at an internal person, put them through the same processes and see who comes up trumps,” he says.

“If you appoint someone already in the company then the learning curve isn’t as steep, but there may be benefits from bringing fresh blood to the role – just look at what Patrick Snowball has done at Suncorp.

“John Borghetti (Virgin Blue) has a lot of experience with a low-cost carrier and Qantas, so he’s seen the best of both, and the worst of both, and he’s making changes to make Virgin more competitive in the market and more appealing as far as yield goes. I think it’s a great appointment frankly.”

With controversy surrounding executive pay, Reynolds highlights a balance between incentives and performance, advising that three to five-year share options are better than bonus systems.

“To get the right person you need to have the right rewards, but you need the reward structure and behaviour it dictates to be effective,” he says.

“The more complex the role and the more complex the organisation, the higher the salary, but it should be connected to long term gains.”

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