Ed Batista

The Evolution of the Executive Team

A theme in my work with clients is how to get more leverage. This isn't quite the same thing as productivity, which involves "doing more things," or "doing things more efficiently." Leverage entails understanding the tasks and activities that generate the most long-term value [1], and one of a CEO's greatest sources of leverage is the group of senior leaders who report to them. For consistency I'll refer to this group as the executive team, although the terminology varies across organizations. A CEO's management of an executive team doesn't always feel "productive"–at times it requires an intense focus on a small number of people and issues. But a high-performing executive team will generate a tremendous return on a CEO's investment of time, effort, and attention.

Here I discuss four aspects of executive teams: identity, composition, leadership, and culture. Some change more readily than others, but teams as a whole are rarely static. They constantly evolve to meet the requirements of the business, team members, and other stakeholders. Visible, discontinuous developments, such as the initial establishment of a formal team or a change in membership, tend to happen at periodic intervals, but subtle, small-scale adjustments can occur at any time.

1. The Evolution of Team Identity

What is an executive team's purpose? When should it be formalized? [2]

When a company is founded, calling a group of people the "executive team" (or something similar) is superfluous and even counter-productive. Early-stage employees are attracted by the prospect of working directly for a founder, and founders want to be as close as possible to the work those early-stage employees are doing. An intermediate layer of management between the CEO and other employees at this stage serves no purpose except to reward status-seekers.

Even after the first layers of management have been created, key employees often have information that leaders require in order to make decisions, and the systems necessary to provide that information in the employees' absence haven't yet been built or are technically infeasible. So it's common for early-stage CEOs to defer establishing a clearly-defined executive team with a fixed membership–and yet a number of factors eventually make it necessary.

The effort required to provide thoughtful one-on-one management to employees leads most CEOs to decrease their number of direct reports over time. In part this is because as an organization grows and the people reporting to the CEO become more senior, the CEO provides less direction and more coaching and other forms of support, which can be more time-intensive, not less. Senior leaders are hard to replace, so the CEO needs to remain abreast of (and actively influence) their commitment to the role, which requires a close understanding of each individual's sources of motivation and fulfillment. [3] The formalization of an executive team helps the CEO focus their managerial attention on a smaller number of people and have a greater impact in the process.

This benefits team members not only through their relationships with the CEO, but also through the establishment of a coherent group identity and their relationships with each other. The informal assembly of senior employees that predates a formal executive team lacks an identity–it probably doesn't even have a name–and its membership is fluid and heterogeneous. This renders it more flexible, but it also inhibits the development of psychological safety. Note that a safe environment doesn't mean people are "nice" or indirect–it means that people feel free to speak their minds and that vigorous disagreements can take place without undue distress. [4]

A clearly-defined executive team can enhance psychological safety in several ways. Even when the team includes a range of titles (e.g. C-levels, SVPs/EVPs, VPs), membership confers a shared status, and repeated interactions among members render team discussions more predictable, factors that make interpersonal conflict easier to manage. [5] And the "mere exposure effect" causes people to feel a greater sense of affinity for each other with regular contact. [6] None of this implies that formal executive teams are more harmonious than informal leadership groups–they may well be more fractious, because the members feel safer and thus more comfortable openly disagreeing with each others. [7]

The formal establishment of an executive team is no guarantee of a persistent and healthy team identity, and a CEO has a unique responsibility to ensure that team members maintain a sense of group cohesion [8] and a belief in their collective capabilities. [9] An executive team's identity can shift dramatically as a result of changes in composition, but it will continue to evolve–for better and for worse–through the team's shared experiences and members' behavior toward each other.

2. The Evolution of Team Composition

Who should be on the executive team? How many members should it have?

There's no one right way to constitute an executive team or a single optimal size, but I've observed that teams trend toward an ideal state over time:

• Everyone who reports to the CEO is on the executive team, and everyone who's on the executive team reports to the CEO. (This does not include the CEO's Executive Assistant, but it may include a Chief of Staff.)
• The team is large enough to possess the information needed for decision-making, but small enough to build meaningful relationships and serve as an effective decision-making body.
• The team is sufficiently heterogeneous to provide a range of perspectives and avoid groupthink, but not at the expense of social cohesion or a shared identity. [10]

Leaders I've worked with typically strive toward this configuration, and yet there are many reasons why they fall short or tolerate irregularities. At times the CEO chooses to manage an individual whose role is too narrowly scoped to merit inclusion, or who's too inexperienced to add value in team discussions. In most cases this is a temporary measure, because anyone who's sufficiently senior to be managed by the CEO will eventually agitate to be included. The CEO then faces a choice: Add the person to the executive team, increasing its size and complexity, or level them under another direct report, increasing the likelihood that they become a flight risk. [11]

Alternatively, a CEO may opt to retain a former direct report on the executive team after levelling them under another senior leader. For example, this can occur when a CEO hopes to retain a less-experienced VP who will now report to a new C-level leader. The VP may tolerate being levelled, particularly if the incoming leader is demonstrably more experienced, but they will almost certainly resent being removed from the executive team. And yet this also tends to be an expedient solution rather than a permanent one because the presence of skip-levels on an executive team adds a degree of heterogeneity that can cause a number of difficulties.

Any skip-levels who are not members of the executive team will wonder why they're being excluded and what they need to do to earn a spot, and this may apply to all direct reports of all team members, causing extensive discontent within the company. The new C-level leader and the levelled VP will wonder if it's safe for them to disagree in team discussions. And the team environment may feel less intimate for all members, with senior leaders reluctant to be candid in the presence of a subordinate.

None of these challenges are insurmountable, nor are they reasons to automatically default to the "ideal" configuration described above. But a CEO considering any changes to team composition should bear in mind that there are almost always costs offsetting any potential benefits. Adding new members may expand the team's access to information, but it will also render the network of relationships it encompasses more complex and may increase the CEO's obligatory one-on-ones. Removing superfluous members will simplify the team's interpersonal dynamics, but the remaining members may need to cover a broader span of issues and be better prepared for team interactions.

A common by-product as a CEO designs a smaller executive team is the establishment of a second, larger management body that includes some or all of the executives' direct reports. This group is more heterogeneous than the executive team, but it can also have a defined membership, a regular meeting cadence, and its own identity. The size and composition of this group will render it less intimate, but it need not be purely performative (although that's a potential risk.) Among other purposes, such as information-sharing, this larger group can provide junior leaders with a sense of inclusion and engagement, even (and especially) if they were previously members of the executive team.

3. The Evolution of Team Leadership

A CEO has a number of team leadership responsibilities, and while some of these duties will always be part of their job description, others will change over time. [12] First among them is the authority to formally establish the team and determine its membership (although in some cases executive roles may be subject to Board approval.) In this context the CEO must maintain a delicate balance–they have to build trusting, meaningful relationships with team members, while also rigorously assessing each member's ability to contribute to the business and the team itself.

Leaders can err on both sides here. They can be too quick to manage out or demote executives perceived to be under-performing, fostering anxiety among the team and preventing the emergence of a truly collaborative culture. But they can also be too loyal to executives who are failing to keep up with the demands of their role, particularly if there's a personal relationship at stake or if an executive is well-liked or regarded as a champion of company culture. [13]

Early in a team's development the CEO tends to play a highly active role in all team activities, from agenda-setting to meeting facilitation to decision-making. This usually changes as a consequence of several factors: Team members want a greater say in the topics under discussion and the process of issue resolution. Formalized team procedures disperse responsibility and require less individual initiative on the CEO's part to drive action. And the team may grow more capable of self-management, not only as a result of greater familiarity and trust, but also via the addition of more capable members (and the removal of less capable ones.)

As the membership of an executive team grows more talented and experienced, it's not unusual for a CEO to wonder, "How do I add value here?" While it may feel daunting, this is an opportunity for the CEO and the rest of the team to rethink their assumptions about who's responsible for what. Some duties may be delegated to a President, COO, or Chief of Staff. A talented Chief People Office or VP People may be able to play a special role in addressing and improving team dynamics. The CEO will always occupy a unique symbolic role [14], but revamping their approach to team leadership will enable them to continue to add value without becoming a bottleneck. [15]

4. The Evolution of Team Culture

I've known leaders who are skeptical about the concept of "organizational culture" because it's often poorly defined, or defined in ways that promote an empathetic style of leadership at the expense of accountability. [16] But Michael Watkins of the International Institute of Management Development offers a set of simple, even-handed definitions of culture that are relevant to any team in any context:

• Consistent, observable patterns of behavior.
• A process of "sensemaking" that yields shared beliefs about the team and its environment, and a source of meaning that explains why these things are the way they are.
• A social control system that promotes productive behavior, proscribes counter-productive behavior, and specifies behavioral norms as well as penalties for norm violations. [17]

A dilemma for many teams is that their culture is largely invisible to them. They're the proverbial fish who ask, "What's water?" [18] But cultures vary widely in their ability to support (or preclude) optimal performance, and executive teams are well-served by developing a better understanding of their own. A CEO can't dictate an executive team's culture, but they can certainly influence it, and one of their most powerful tools in this regard is the ability to pause the team's day-to-day work in order to assess how they work. Sometimes this occurs via large-scale interventions–retreats, offsites, exercises–but it can also take the form of a brief post-mortem following any team activity: How did that go? Everyone's point of view matters, but in many cases only the CEO is in a position to ensure these activities occur and license candid participation.

Some of the most elemental aspects of executive team culture are the "patterns of behavior" surrounding group interactions, both formal and informal, in-person and online. Such patterns tend to become routinized over time, but that doesn't mean they've been deliberately optimized for performance–they may simply reflect "the way we do things here." But what worked well at an earlier stage of the team's development may not work as well today–or may be actively unhelpful. Much of my work with clients on this topic involves asking simple questions to highlight and assess any patterns involving team meetings, communication tools, and calendars: What's the agenda (and who sets it)? How are we using Slack? How do events get on our calendars?

A team's culture also encompasses the "process of sensemaking" that enables members to arrive at a set of interpretations that explain the world around them. This shared sense of meaning is necessary for any group to collectively grasp a complex situation and work together to achieve their goals–an essential quality for an executive team. Psychologist and management expert Karl Weick studied the consequences of "deficient sensemaking" in groups and its implications for organizational life:

The basic idea of sensemaking is that reality is an ongoing accomplishment that emerges from efforts to create order and make retrospective sense of what occurs. Organizations can be good at decision making and still falter. They falter because of deficient sensemaking. The world of decision making is about strategic rationality. It is built from clear questions and clear answers that attempt to remove ignorance. The world of sensemaking is different. Sensemaking is about contextual rationality. It is built out of vague questions, muddy answers, and negotiated agreements that attempt to reduce confusion. [19]

An executive team with a robust sensemaking culture embraces the "vague questions, muddy answers, and negotiated agreements" that they must inevitably confront while doing business. This doesn't mean that they're always in harmony–the process almost always requires a degree of comfort with conflict. But teams that lack this capability never truly operate as a team–they remain a disparate collection of individuals, each acting upon their own subjective interpretation of the world around them, often to their detriment.

All of these concepts ultimately find expression in a team's norms, which I've previously defined as "social regularities that individuals feel obligated to follow, and patterns of behavior based on shared beliefs about how individuals should behave." [20] Note that a team's norms may diverge significantly from their values: "Whenever employee behavior is inconsistent with a company's stated values, that's because those values are merely a set of rules, which define what we intend to do, or what we're supposed to do, or what we aspire to do. There's a tremendous difference between rules and norms, which are what we actually do." [21]

As David Bradford, one of my mentors, used to say, "Functional norms support high performance. Limiting norms don't. The more explicit norms are, the more likely they'll be functional. And the most limiting norm…is a norm of not discussing norms." [22] And fostering an ongoing dialogue about this aspect of team culture may be the most valuable role a CEO can play in furthering the evolution of their executive team.

Footnotes

[1] 1x 10x 100x (On Leverage)

[2] This section is adapted from The Judicious Imposition of Structure.

[3] Currencies (On Motivating Different People)

[4] Safety Is a Resource, Not a Destination

[5] How Leaders Create Safety and Danger

[6] Exposure effects in the classroom: The development of affinity among students (Richard Moreland and Scott Beach, Journal of Experimental Social Psychology, 1992)

[7] How Management Teams Can Have a Good Fight (Kathleen Eisenhardt, Jean Kahwajy and L.J. Bourgeois III, Harvard Business Review, 1997):

Without conflict, groups lose their effectiveness. Managers often become withdrawn and only superficially harmonious. Indeed, we found that the alternative to conflict is usually not agreement but apathy and disengagement. Teams unable to foster substantive conflict ultimately achieve, on average, lower performance. Among the companies that we observed, low-conflict teams tended to forget to consider key issues or were simply unaware of important aspects of their strategic situation. They missed opportunities to question falsely limiting assumptions or to generate significantly different alternatives. Not surprisingly, their actions were often easy for competitors to anticipate.

[8] Huddle Up! (Building Group Cohesion)

[9] Building the Emotional Intelligence of Groups, page 83 (Vanessa Urch Druskat and Steven Wolff, Harvard Business Review, March 2001):

Study after study has shown that teams are more creative and productive when they can achieve high levels of participation, cooperation, and collaboration among members. But interactive behaviors like these aren't easy to legislate. Our work shows that three basic conditions need to be present before such behaviors can occur: mutual trust among members, a sense of group identity (a feeling among members that they belong to a unique and worthwhile group), and a sense of group efficacy (the belief that the team can perform well and that group members are more effective working together than apart)… At the heart of these three conditions are emotions. Trust, a sense of identity, and a feeling of efficacy arise in environments where emotion is well handled, so groups stand to benefit by building their emotional intelligence.

[10] Research on the impact of group composition and diversity on performance is inconclusive–it's easy to find studies supporting almost any point you want to make on the subject. Two observations drawn from my experience are that 1) homogeneous teams experience less conflict but can be more prone to blind spots and "groupthink," and 2) heterogeneous teams can only make effective use of their diversity once they learn to manage conflict effectively (including, but not limited to, the topic under discussion here.)

[11] The Fine Art of Levelling

[12] Three Buckets (On CEO Job Descriptions)

[13] Merciful Exits (On Under-Performing Executives)

[14] Leader as Avatar

[15] How to Scale: Do Less, Lead More

[16] Accountability and Empathy (Are Not Mutually Exclusive)

[17] Adapted from What Is Organizational Culture? (Michael Watkins, Harvard Business Review, 2013)

[18] "There are these two young fish swimming along, and they happen to meet an older fish swimming the other way, who nods at them and says, 'Morning, boys, how's the water?' And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes, 'What the hell is water?'" (David Foster Wallace, "This Is Water," Kenyon College Commencement, 2005)

[19] "The Collapse of Sensemaking in Organizations: The Mann Gulch Disaster" (Karl Weick, Administrative Science Quarterly, Volume 38, Number 4, December 1993)

[20] Rules Aren't Norms (On Company Values)

[21] Ibid.

[22] Adapted from materials that David shared with me. For more on our relationship, see Thank You, David Bradford.

Photo by gajman.

Handing Off to a New CEO

I've worked with several dozen clients through the process of a CEO transition: The outgoing CEO who will serve as the Board's executive chair. The outgoing CEO who's ready to sit on a beach for a while. The incoming CEO who's succeeding a capable predecessor. The incoming CEO who's succeeding a dismal failure. The former CEO who sold the company and will be an executive with the acquirer. The former CEO who's taking another executive role under their successor. The investor and the C-level leader who aren't changing roles but have ringside seats and will be heavily impacted.

There's no one right way to orchestrate and execute this transition–every situation is unique, and there are a host of factors that merit consideration. But I've observed a sequence of stages that CEOs and companies tend to follow–see below. To be clear, there's nothing prescriptive about this framework–it's not a required order of operations, and it's not uncommon for a CEO and their colleagues to work through these stages in a different order.

Whatever path they followed, most of my clients who've navigated this transition were doing so for the first time, investors aside, and they've found it useful when I was able to normalize their experience by drawing upon my work with others in similar circumstances. While I've also worked with CEOs who've been removed from the business by their Boards (and with investors who've had to remove CEOs), that's a very different situation. In this post I'll focus on the CEO who's opting to leave, albeit often with mixed feelings.

1. The Dream

The starting point in this process is just an idea, a dream. The poorly-kept secret about CEO positions is that they can be profoundly stressful and lonely, and the compensation, power, status and other benefits may not outweigh the downsides indefinitely. [1] The calculus may start to shift after a period of time, and the CEO begins to imagine a life without the pressure, the problems, the visibility, the lack of empathy. [2] Even when everything's fine a CEO may begin to dream about something different: a big new idea, or an alternative industry, or an earlier stage of growth.

Sometimes this is just a fleeting fantasy, and merely thinking about leaving offers some respite. But in other cases that idea takes hold and becomes a goal–and yet while CEO positions are very difficult to obtain and hold, it turns out that they're also very difficult to leave. Even when a company has achieved a degree of sustained success, there's rarely a moment when it's obvious that the CEO should transition out. Sometimes a company's success leads to even greater anxiety about a CEO's potential departure–no one wants to take the risk that the business might stumble. And when a company is struggling, the CEO is undoubtedly reluctant to leave on a low note.

In all cases, the CEO is keenly aware of the commitments they've made to various stakeholders–employees, customers, investors–and that there's no way to leave without someone feeling disappointed, hurt, even angry. So it's common for this initial stage of the process to take a long time–but one way a transition can go wrong is when a CEO continues to defer acting upon this dream, waiting for that magical moment when the stars align and everyone will cheer them on as they depart.

This isn't impossible, but it's unlikely. And a risk that can increase over time is that the CEO's disenchantment builds to unbearable levels, leading them to conclude that they must leave and soon, which can result in any number of sub-optimal choices. [3] It's rarely a good idea to rush a CEO transition, which may entail not waiting too long to take the dream seriously.

2. The Inner Circle

Having done so, the dilemma CEOs face is that it's difficult to even raise the possibility of a transition with most stakeholders. Anyone with a stake in the company's success may value that stake over the CEO's well-being–and in the case of Board members and investors, this can be a professional obligation. This isn't to say that no one cares at all, but even stakeholders who truly want the best for the CEO as a person will likely be conflicted in some way.

And yet CEO transitions are group undertakings, not solo efforts, so inevitably the CEO must identify an inner circle and bring them into their confidence. It's easy to start with people who don't have a stake in the business and may even be bound by confidentiality agreements–family and friends, a mentor or coach. These figures can offer empathetic support and useful guidance, but eventually the CEO must involve people who can take action and whose approval may be needed to move forward.

There's no definitive guide to who should be included in this inner circle, but it's worth asking: How will the parties under consideration balance their competing interests? Can they be relied upon not only to be discreet, but also to provide objective advice? How will they feel about this news? How will they feel if they find out second-hand, or later in the process? In a word, are they trustworthy? [4] Yet trust develops slowly, and just as the best time to plant a tree is 20 years ago, the best time to begin testing for trustworthiness in a professional relationship is at the very start. [5]

The greater the trust, the more candid the CEO can be–but even within the inner circle it's necessary to bear in mind that news like this is the proverbial bell that can't be unrung. Once a CEO has indicated that they're open to a transition, this information will begin to have an effect on everyone else's plans and ambitions. It's a mistake to entrust this news too early or with the wrong people, but it's also a mistake to keep it too close for too long. When key stakeholders feel that they've been informed too late in the process, they may take it as an insult–and it may be a missed opportunity to enlist their support.

3. The Horse Race

Having mobilized an inner circle who can offer various forms of assistance, the CEO now needs to identify a slate of potential successors. In sufficiently large organizations with deep leadership benches, these candidates already occupy roles within the company as C-level officers, functional leaders or division heads, but even smaller, early-stage companies may have one or two viable internal candidates. With a sufficiently long timeline, the CEO may have filled some of these roles with this very possibility in mind. But you can't stockpile talent indefinitely–the challenge in building a deep bench is that the best internal candidates won't wait forever, and if they're kept waiting too long they'll grow restless and either leave or push for a transition before the CEO is ready. [6]

In many organizations the existing leadership team doesn't contain a candidate who would be an acceptable choice to all stakeholders with a say in the decision, which requires turning to outside talent. And in some cases stakeholders feel obligated to conduct an external search no matter who's on the bench in order to meet a standard of diligence. It's important to be aware at the outset that a CEO search will be more complex and fraught than those for other C-level roles.

The need for confidentiality is greater. The pool of candidates is smaller. The decision will be harder and more expensive to undo, so the stakes are higher. And while it's always the case that the best candidates for any role will be more selective, this is exacerbated in a CEO search because of the visibility of the position–a successful former CEO will be very reluctant to take on a new role if there's any chance that it might tarnish their record.

In any event, the right inner circle can play a helpful role at this stage of the process. Presumably they have the ability to assess senior executive talent, putting them in a good position to vet both any internal candidates and those identified by a search firm. They may also have personal networks from which additional candidates can be drawn. In the best case scenario, their discretion, judgment and integrity enable them to advise the CEO in a way that meets the leader's personal needs as well as what's best for the company.

But the process can go awry in various ways at this stage. Companies can take the idea of a "horse race" literally, pitting candidates against each other in a destructive competition. The process by which General Electric identified Jeff Immelt as Jack Welch's successor is a prime example. [7] Given the difficulty of this search, it's not uncommon for even the best firms to require more time than the CEO would like, and many of the external candidates will be C-level executives who've never been a CEO. (Some data suggests that more than 70 percent of CEOs are first-timers. [8])

All this may require decision-makers to take a leap of faith in a candidate's potential, knowing that a misfire will be costly and high-profile. And the inner circle doesn't always live up to the ideal–they often face intense pressures of their own, and it can be difficult to balance such strong competing interests.

4. The Covert Candidate

Ultimately the CEO and other decision-makers among the inner circle must settle on a leading candidate. A key for the CEO here is managing expectations, including their own. By this point in the process the CEO may be eager to move forward, and other stakeholders can have their own reasons for wanting to press toward a decision. But it can be a mistake to allow any particular preference to exert undue influence here, so it's advisable to proceed judiciously.

One way to slow the process down is to identify a leading candidate without telling them. This enables the CEO and other stakeholders to assess the candidate's suitability without making any commitments and maintaining maximum flexibility. The downside is that the covert candidate may pursue other plans for their career if they don't realize that they're in the running for the role, or become frustrated if they feel they merit consideration and are unaware of the ongoing process.

It's not uncommon for this step to occur sooner, particularly if a CEO has high confidence in a given candidate's viability as their successor or low confidence in the value of their inner circle as thought partners or sources of prospective candidates. A CEO may fill a C-level role with the express purpose of testing that person as a potential successor, well before they share that news with the candidate (or anyone else.)

5. The Overt Candidate

Despite the value of flexibility, at some point it becomes necessary to communicate to a candidate that they're in the running to be the CEO. If the candidate is being sourced externally, this is likely to be accompanied by a formal offer, or at least the beginning of a negotiation. But if the leading candidate is an internal executive, an offer may not yet be forthcoming. As noted above, it will be very difficult to undo a mistake, and it's likely that the candidate hasn't been a CEO before.

So the CEO and other decision-makers may want to assess the candidate's performance with the added weight of a succession plan on their shoulders before offering terms. In cases where the incumbent CEO exercises outright or effective control, they may skip directly to this stage, privately designating an internal executive as their successor, or bringing on a new C-level leader for this express purpose.

However they arrive here, at this stage the candidate will be put through their paces in any number of contexts–life will be an ongoing, slow-motion job interview. They'll be assessed on their ability to deliver results in their function, develop strong working relationships with various stakeholders, improve the dynamic on the executive team, and be an effective CEO proxy in public and private settings.

And yet informing the executive that they're a (or the) leading candidate, without making any binding commitments can leave them in a state of limbo. They may be sufficiently motivated by the prospect of becoming CEO to tolerate the ambiguity, in some cases for an extended period of time, but it's still difficult and stressful, and the uncertainty may eventually undermine their commitment to the role.

6. The Close

Whether an offer is delivered up front or an overt candidate finally passes the test (or signals that they're losing patience), eventually the process reaches a point where terms must be finalized to close the candidate. Note that this is neither the beginning nor the end of the negotiation–it's merely a particularly acute and explicit phase. In actuality both sides have been negotiating for some time–although not necessarily with the same degree of awareness and deliberation–and in some cases negotiations may continue well after one side (mistakenly) believes they've been concluded.

By this point a number of the key terms may have been initially addressed or even resolved–this is where a sophisticated go-between such as a trusted member of the inner circle or an experienced recruiter can play a helpful role. But even when preliminary dialogue has reduced the information asymmetry, one or both parties can still find themselves surprised by the contents of the offer (or the counter-offer.)

When this happens one party has usually misunderstood the other party's negotiating culture, a topic I've addressed before: "In a list-price culture, there's a high degree of transparency and very little flexibility. An opening offer may not be take-it-or-leave it, but there's relatively little gamesmanship in the process… In a haggling culture, the opposite is true. There's very little transparency and a great deal of flexibility. Opening offers are never take-it-or-leave-it, and gamesmanship abounds." [9]

There's no one right way to negotiate, and each approach has its pros and cons, but problems occur when the parties have different negotiating cultures and fail to realize it. Usually this becomes evident at earlier stages of the process, but sometimes this is a sudden (and surprising) discovery late in the game. At that point it's essential to attend closely to any potential ambiguities and misinterpretations, another topic I've discussed previously:

When an offer falls apart unexpectedly, the party caught by surprise was presumably under the impression that the issues under discussion were appropriate at this stage, that their stated positions were reasonable, and that progress was being made–but the other party had a very different interpretation of the situation. [10]

7. The Narrative

Once the candidate has been closed, it's time to spread the word about the impending transition and the incoming CEO, which is by no means a simple PR task. The key here is having all parties agree upon and effectively communicate the narrative that will explain what's happening and why to all interested parties. Crafting and conveying a compelling explanatory narrative is a critical skill in organizational life that's a common theme in my practice:

We depend upon narratives to navigate the world… Organizational psychologist Karl Weick called this "sensemaking": we rely upon narratives to "make sense" of ambiguous situations and pursue a plan of action in coordination with others. But our reliance on narratives means that in the absence of a coherent story we will feel lost and ungrounded. This poses a risk when we face rapid change that may overtake our existing narrative and render it out of date, as Weick noted: "People…act as if events cohere in time and space and that change unfolds in an orderly manner. These everyday cosmologies are subject to disruption." [11]

In some situations the narrative is evident and clear: A longtime CEO who's had a successful run is retiring and handing the reins to a trusted lieutenant who's an obvious successor known by all stakeholders and intimately familiar with the business. But it's rare that all the elements line up so neatly–it's much more common that a CEO transition raises some questions in the minds of stakeholders: Is the business struggling? Was the outgoing CEO struggling? What do they know that we don't? Why are they leaving us? Who is this new person we're supposed to accept as our leader? And what will our lives be like under their leadership?

Such questions come up with other executive transitions, but they're more fraught in the case of a CEO's departure because of the symbolic nature of the role–they embody the organization. [12] CEOs don't just make decisions and allocate resources–they offer reassurance at a primal level that the uncertainty surrounding the business can be rendered predictable. [13] So when a CEO  departs, the disruption leads stakeholders to wonder whether events will continue to "cohere in time and space" and if change will "unfold in an orderly manner."

Thus the importance of a narrative that answers stakeholders' questions and enables them to make sense of the transition. Note that I'm not suggesting that anything in the narrative should be untrue or misleading. The narrative must be factually accurate, but it will inevitably focus on certain reasons for the transition at the expense of others. This is a function of the fact that public discourse has a limited capacity for nuance and complexity. The narrative must be true, and it's unlikely that it will be able to accommodate the whole truth. As noted above, CEO roles can be stressful and lonely, and that's often a factor in a given CEO's decision to leave–but few stakeholders will empathize with this reality, so it's rarely incorporated into the narrative.

One specific tactical challenge is informing anyone who will be directly affected but was not part of the inner circle or a participant in the hiring process. When this news is delivered effectively, these people understand why they weren't involved and appreciate getting a personal heads-up in advance of any broader announcements. The purpose isn't just to assuage their egos, but to minimize any rancor toward the outgoing CEO and to ensure that the incoming CEO is set up for success in these working relationships.

8. The Handoff

We're finally ready for the baton to be passed from the outgoing CEO to their successor. And yet there's no guarantee of a clean handoff, and there are many ways in which it can be bobbled or botched. In the best-case scenario there's a shared understanding among all stakeholders of the timeline, various parties' roles and responsibilities, and what will change–and what will not–under the incoming CEO. But sometimes these details are overlooked as the handoff approaches, or one or more parties will mistakenly (or conveniently) assume that a shared understanding has been achieved.

There's no one optimal timeline, and a host of factors can affect the pace of the transition following any public announcements. But in my experience most transitions take too long, for several predictable reasons. Organizations tend to solve for optionality, which results in a longer period of overlap between the incoming and outgoing CEOs. The short-term risk of a transition that's too abrupt is more vivid and salient than the long-term risk of a transition that's too drawn-out. And even when an incumbent CEO is ready to move on, they've likely felt a degree of ambivalence throughout the process, and those emotions may intensify as the handoff approaches.

It's also common for different parties to have divergent or even incompatible perspectives on their roles and responsibilities, and a critical figure here is the outgoing CEO. They often retain a Board seat, and although it's increasingly rare for them to become executive chair in large companies [14], it's not unusual at smaller scales. But in those cases it's essential for the outgoing CEO, their successor, and all other Board members to clarify and agree upon the executive chair's duties. I've seen cases where a newly installed executive chair feels under-utilized by their CEO successor–and others where a new CEO feels intruded upon by their predecessor.

And even when the incoming CEO is a longstanding internal leader and the transition promises to be smooth and seamless, it's almost always the case that the newcomer will want to make some changes and put their own stamp on the role. The outgoing CEO may fully expect this and even approve in principle–but when they see their preferred management practices altered or abandoned, they may well offer some resistance. Outgoing CEOs usually want their successors to succeed, but they typically feel some chagrin at being succeeded.

9. The Hard Part

The handoff has been made, and the transition is complete. It's taken a lot of time and effort to get here–and yet this is where the real work begins, and for many leaders it can be confusing and disheartening to realize how much remains to be done. A useful analogy is moving house–given how much work it takes to find and secure a new home, and then pack up and transport our possessions, we imagine that the process will be over when the moving truck drives away. But then we look around at the stacks of cardboard boxes, and we realize that we have no idea where to find the silverware, and it dawns on us that we're still very much in the midst of our labors.

In some ways the outgoing CEO has it easy–at the very least, they're usually relieved to be free from operational responsibilities. It may even feel like "school's out" and "summer vacation" has begun, and they're delighted to see a long stretch of empty dates on their calendar. But this feeling rarely lasts as long as they think it will, and it's not unusual for former CEOs to soon find themselves at loose ends. They don't miss the stress and pressure, but they're surprised to discover the extent to which leadership has become a part of their identity, and they do miss the opportunity to be of service in this capacity. As I counsel former CEOs in my practice, it's essential to prepare for this moment [15] and avoid rushing into another leadership role prematurely. [16]

The challenges facing the incoming CEO will vary widely depending on the circumstances, but I've never seen a situation where everything goes as planned, so it pays to expect the unexpected. Turning around an underperforming business is hard–but it's also hard to take over a smoothly running machine and feel the pressure of ensuring continued success. An incoming CEO who's new to the organization must integrate with the surrounding culture to gain credibility and traction [17], while a CEO who's been promoted from within can be surprised by the change in how they're perceived, even by longtime colleagues.

Stakeholders who were involved in hiring the new CEO or endorsed their candidacy generally have a set of assumptions and expectations that formed the basis for their support. But even when such ideas are well-founded, leaders are reliably more complex than our reductive images of them, and it's always possible that a stakeholder's perception was based in part on wishful thinking. Stakeholders can feel let down, or even betrayed, when any gaps appear between their hopes for the incoming CEO and the reality. In some cases stakeholders need to ask whether their assumptions and expectations were accurate to begin with, but in others these gaps can serve as the basis for more candid conversation about the new CEO's leadership and their plans for the business.

While I've highlighted the many potential pitfalls in this process, my intent isn't to dissuade CEOs or their colleagues from pursuing a transition. Leaders and organizations may fear and resist change, in part because they believe that an individual CEO is "irreplaceable." I've seen leaders have a profound impact on company performance, and I believe that great leadership can make a difference. [18] But as I wrote recently, "I launched my coaching practice in 2006, and I've never seen a company fail because of the departure of any one individual. I've concluded that organizations are often far more resilient than leaders think they are." [19]

Footnotes

[1] Watch That Next Step (CEO Problems)

[2] The Difficulty of Empathizing Up

[3] Extending Your Personal Runway

[4] Two Sides of Trust

[5] How to Think Long-Term

[6] Talking About Promotions (with Very Ambitious People)

[7] GE Powered the American Century—Then It Burned Out (Thomas Gryta and Ted Mann, The Wall Street Journal, 2018)

[8] Why Today's CEOs Aren't Prepared for the Job (Joel Trammell, Texas CEO Magazine, 2023)

[9] Culture, Compensation and Negotiation

[10] When Offers Fall Apart

[11] The Importance of Shared Narrative

[12] Leader as Avatar

[13] Leadership and Transference

[14] 2022 S&P 500 CEO Transitions (Spencer Stuart, 2023)

[15] You Quit. You're Free. Now What?

[16] Don't Take That Job

[17] Conform to the Culture Just Enough

[18] What Do Great Leaders Do?

[19] Fear of the Empty Chair, Part 3 (On Attrition)

Photos by tableatny: left, right.

Fear of the Empty Chair, Part 3 (On Attrition)

In Fear of the Empty Chair, Part 1, I discuss the factors that cause leaders to mistakenly delay a necessary termination. In Part 2 I explore why leaders rush to fill an empty role when they should actually slow down. Here I address a third, related situation in which a leader's misplaced concerns can contribute to suboptimal outcomes: the unwanted departure of a valued employee, which I'll call attrition.

Leaders strive to avoid attrition for understandable reasons. Valued employees represent a substantial investment of time and effort, ranging from recruiting and hiring to onboarding, training, and management. They possess hard-earned institutional knowledge. And they've demonstrated their trustworthiness and sound judgment.

So a theme in my practice is how a leader can retain valued employees in order to ensure that the organization will continue to benefit from these qualities. But such retention efforts can go awry when a leader is so concerned about a potential departure that they make choices they later regret. What issues tend to arise in these circumstances, and if you're in a similar situation, what can you do about them?

Fighting Inflation

When a leader learns that a valued employee is thinking about leaving, they may feel that they're in a negotiation that they must win, and their response is to offer more: a bigger compensation package, a higher-status title, a broader scope of responsibilities.

In many cases these negotiations conclude successfully, and leader and employee resume their productive partnership, albeit on modified terms. But sometimes that "must-win" attitude causes a leader to offer too much. They retain the employee, but on inflated terms: a compensation package dramatically higher than the employee could command elsewhere, a title that outstrips their real level of expertise or authority, responsibilities that they're unable to truly fulfill.

If you're a leader in this position, what can you do? How can you fight inflation? The first step is assessing your attitude toward the negotiation. Roger Fisher and William Ury, founders of the Harvard Program on Negotiation, suggest an approach to ensure that you don't "win" a negotiation on inflated terms:

The reason you negotiate is to produce something better than the results you can obtain without negotiating. What are those results? What is your BATNA–your Best Alternative to a Negotiated Agreement? That is the standard against which any proposed agreement should be measured. This is the only standard which can protect you both from accepting terms that are too unfavorable and from rejecting terms it would be in your interest to accept… If you have not thought carefully about what you will do if you fail to reach an agreement, you are negotiating with your eyes closed. [1]

When you take a "must-win" approach, you assume that you have no BATNA, increasing the likelihood that you'll retain your employee on inflated terms. You'll "win" today but may well lose in the long run. I'm not suggesting that you make no effort to retain a valued employee, but, rather, that you reassess your options and calibrate the terms on offer accordingly. You may well find that what your employee really wants are other "currencies" that are less subject to inflation. [2]

Short-Term Pain vs. Long-Term Pain

As was the case in Part 1 and Part 2 of this series, a challenge leaders face when they learn that a valued employee is considering a transition is the assumption that the short-term pain will be greater than the long-term pain. This belief is at the root of a leader's assumption that they have no BATNA and must avoid attrition at all costs, so it's necessary to challenge its accuracy.

Seeing a valued employee leave will undoubtedly cause short-term pain in a variety of ways: the loss of their individual capabilities, a potentially expensive and time-consuming search, the prospect of a gap in continuity, and important work going undone. But leaders sometimes fail to appreciate that their efforts to avoid short-term pain may make the long-term pain even worse.

Retaining an employee on inflated terms can have far-reaching effects. Compensation packages don't always remain confidential, and when significant discrepancies come to light other employees will be rightfully upset. Titles are by definition visible, and raising one person's status can make others feel that they've been demoted, triggering a cascade of discontent. [3] And employees who are "over-scoped" tend to under-perform, making it necessary to level them [4] or manage them out. [5]

If you're a leader facing the departure of a valued employee, balance the value of their retention against the costs of the means required to do so. And some of these costs may not be evident for a length of time, requiring you to project into the future and think well beyond this specific individual.

Irreplaceable?

The anxiety leaders experience in the face of attrition is exacerbated when they imagine that the employee is "irreplaceable" in some way, and on occasion this fear has merit. I've worked with many leaders whose valued employees included co-founders, personal friends, or family members. Those unique individuals couldn't be replaced, nor could the unique relationships the leader enjoyed with them. Leaders may also view an employee as truly mission-critical, fearing that their departure would permanently impair company performance or even, in extreme cases, cause it to fail.

If you're a leader facing the departure of someone you're close with, I appreciate your desire to avoid the loss of that person and your working relationship with them. And yet in my experience it's vital that a leader grow more comfortable with the inevitability of such departures. You can't replace unique individuals, but accepting that colleagues will come and go over time allows both you and the organization to be more adaptable in the face of change.

More generally, if you're concerned about company performance I'm not in a position to tell you that your anxiety is misplaced. It's conceivable that a particular employee is so essential to your business that you'll struggle to succeed without them, especially if you're at a very early stage of development. Should they depart, there will be some short-term pain, to be sure. But I launched my coaching practice in 2006, and I've never seen a company fail because of the departure of any one individual. I've concluded that organizations are often far more resilient than leaders think they are.

Optics

Even when leaders recognize that a valued employee isn't irreplaceable, they may be concerned about how a departure will be perceived by fellow employees, customers, investors, and other stakeholders. Leaders are right to pay close attention to the potential optics, as I wrote in Part 1 of this series, on terminations:

Perceptions matter, particularly for a growing company that may be facing a great deal of uncertainty. In this context leaders must attend closely to the narratives that surround the company and actively shape them through storytelling… The departure of an employee contributes to a company's narrative and may well be perceived negatively, particularly if they're a senior executive or have strong relationships with other employees or external stakeholders.

This is even more pertinent with attrition, and an unwanted departure may well raise questions about the company's future prospects and your capabilities as a leader. But the solution may not be to induce the person to stay–again, the costs may outweigh the benefits. As with terminations, the key is agreeing upon a shared public narrative that helps others make sense of this potentially troubling development, and this is generally easier to accomplish in the case of attrition.

The narrative shouldn't be false or misleading, but it will focus on certain reasons for the employee's departure at the expense of others. This allows the narrative to serve both parties' purposes, but it's also a function of the fact that all public discourse has a limited capacity for nuance and complexity. A shared public narrative must be true, but it need not encompass the whole truth.

The Risk of Changing Minds

Optimally a leader has some awareness that a valued employee is considering a transition, enabling them to intervene before any decisive commitments have been made. But sometimes a leader is completely surprised by an employee's sudden resignation or announcement of a new position. This may prompt a frantic effort to undo what's been done.

Not only is this likely to yield inflated terms, but there's also an inherent risk in trying to change someone's mind here. The employee was reluctant to be candid with the leader, or the leader was oblivious to the employee's discontent, or both. Reversing course won't necessarily change the circumstances that led to this outcome. I'm not suggesting that you should never try to talk someone out of leaving if they've tendered their resignation or accepted another role, but you should be circumspect about the possibility that it might happen again.

When a departure is unavoidable, the leader may seek to negotiate a lengthy transition. This can offer some benefits, but it will also come at a cost. Even a well-meaning employee will find it difficult to give best effort beyond a reasonable length of time, and people underestimate how quickly and dramatically motivation and power dynamics can change once an impeding departure has been made public. If you're a leader in this situation take care not to pressure a departing employee to agree to a transition period that's too long.

An Ounce of Prevention…

…is worth a pound of cure, as an astute letter-writer observed in one of Benjamin Franklin's newspapers. [6] Similarly, while efforts to "cure" unwanted departures can be quite expensive and even counter-productive, efforts to prevent them in the first place are generally much more economical. What does this look like in practice?

At the individual level, as a leader you should know the extent to which each of your direct reports are satisfied with their responsibilities, their compensation, and all other aspects of their role. Barring a sudden, unexpected change in an employee's life that may impact their feelings about work, if you're surprised to learn that a direct report is "loose in the socket," that's a managerial failure.

This is one reason not to have too many reports–while some employees will openly express dissatisfaction, many will not, and the leader needs to create the conditions for a more candid dialogue and actively inquire about an employee's fulfillment (or lack thereof.) The best means to accomplish this is holding regular one-on-ones that go beyond a tactical agenda and make sufficient room for an employee's concerns. [7]

At the team level, you should have a contingency plan for the potential departure of any given member. This involves maintaining a network of potential candidates, relationships with search firms, and an up-to-date assessment of skip-levels' capacity to replace their manager on an interim or permanent basis. And at the organizational level, a more strategic approach to People leadership can help a company increase retention, raise awareness of impending departures, and be better prepared to replace outgoing employees. [8] You should certainly strive to retain valued employees, but you need not live in fear of the empty chair.

This is a companion piece to the following:

Fear of the Empty Chair, Part 1 (On Terminations)

Fear of the Empty Chair, Part 2 (On Hiring)

Footnotes

[1] Getting to Yes: Negotiating Agreement Without Giving In, page 100 (Roger Fisher and William Ury, 1992)

[2] Currencies (On Motivating Different People)

[3] Very Cheap, Then Very Expensive (On Job Titles)

[4] The Fine Art of Levelling

[5] Merciful Exits (On Under-Performing Executives)

[6] On Protection of Towns from Fire (The Pennsylvania Gazette, published by Benjamin Franklin, 1735)

[7] How to Have Better One-on-Ones

[8] The Truly Strategic People Leader

Photo by Votchitsev Viacheslav.