How CEOs Lose Their Mojo

April 1, 2014

There are many ways a CEO loses "it" and becomes a less effective leader and operator.  One of the most common is failing to maintain an A+ leadership team.  It’s not that CEOs become incompetent, stupid or lazy.  The three main reasons they let the quality of the team slip are:

1)    Loyalty to someone who has supported the CEO and performed for her consistently in the past and helped her build the company to its current stage of success;

2)    They have a comfortable, easy working relationship and the reduced friction is perceived to be valuable, even when the team member slips in performance;

3)    The CEO’s belief that the cost/effort/risk of replacing a key executive outweighs current performance that is “good enough for now.” 

Regardless, I once had the privilege of spending some time with Jerry Goldress, whom many consider the godfather of corporate turnarounds, having executed some 150+ over his career.  The insight that most stuck with me was, “When you begin to feel in your tummy that someone’s performance may be starting to slip, you are six months late fixing the problem.”

There is no question that loyalty should be valued and rewarded.  On the other hand, if an executive is no longer the most effective person for the function they drive and own, it’s doing no one, including the person in question, a favor to leave them in the chair.  The company will start to suffer as that person's team starts to perform below expectations, and teams across the organization become less efficient and effective, in a compounding snowball.  Even the CEO will feel the effects, as they will not be getting the best problem detection, analysis, and recommended solutions.  More pernicious, at some point other people in the company will begin to question the CEO's judgment, eroding his leadership ability.

Likewise, a poorly performing executive who occupies a key role because the CEO finds working with them to be easy and comfortable, is equally detrimental to a high functioning team.  The rationale for keeping an employee who isn’t firing on all cylinders is even worse than the previously discussed loyalty rationale above. Keeping the low-performer in their current position personally benefits the CEO, but inhibits the company or other teams.  When loyalty is the driver, the CEO usually sees the performance slip, but is hoping the person can “pull it together” and return to their previously high performance.  In the case of the "comfort" rationale, it is much more insidious -- the CEO is usually less sensitive to the performance slip because it’s otherwise working for him personally, if not for the rest of the company.  It can also cause “politics”, as other executive team members begin to think that managing up or “kissing up” to the CEO is rewarded with more tolerance and patience than would otherwise be warranted.  

The third (and worst) rationale for tolerating under-performing team members is the “opportunity cost” argument.  This one goes something like, “Yeah, he is making mistakes and sometimes letting people down, but that position is really hard to hire for and will take a lot of time and effort to fill. We may end up with someone even worse.  It’s just not a good time to make a change.”  Really?  Is it better to breed fear of change, acceptance of mediocrity, and distrust?  I don’t recall that mantra in any of the management books I’ve read.  To steal/twist a phrase from Jim Collins, when it comes to talent “good enough is the friend of mediocrity.”

Sports teams offer good object lessons around this problem.  It’s often why high-performing sports teams start to slip and fall -- the coach, GM, or owner becomes comfortable or complacent and stops holding the staff and team accountable. They are loyal to those that helped them achieve high success, even when those same people no longer have the passion, drive, and desire to put in the hard work and commitment to takes to consistently perform at a high level.  Nick Saban, currently head football coach of Alabama, is a good example of a leader/coach that constantly demands the best from his staff and players.  He doesn’t hesitate to make a change if he even begins to suspect he’s not getting the best, or doesn’t have the best in each role.  He may not be the most loved coach in America, but he certainly achieves consistent results.

Specific approaches to detecting and addressing these issues include:

·         Have a board member informally meet individually with the management team a couple times a year, to gather their views on how the executive team as a group and the other team members individually are performing, and report back to the CEO.  This is good practice regardless, but requires a strong level of trust between the CEO and the board member, as well as a confident and secure CEO.

·         Hire an independent executive coach or consultant to regularly assess the team and the team dynamics (as well as the CEO’s own performance).  This is a more formal approach (although can also be done informally), and may be more workable when the CEO doesn’t have a strong relationship with the board, or the board is ineffective, and the CEO wants/needs to control the process and the reporting.

·         Conduct internal 360 degree reviews, so that the CEO gets broader feedback about individual team members’ performance.  This can be done in conjunction with either of the two processes above.

·         Separate rewards for loyalty and past performance from rewards for current performance and expectations/needs.  There are many ways to reward loyalty other than leaving a person in a seat they are no longer the most qualified to hold.  This can include stock or option grants to reflect past contributions, a one-time bonus, or a special role that maximizes their abilities and talents but holds less direct responsibility for team or company performance. Regardless, don’t conflate or confuse past contributions with current and future requirements and expectations for the role.

High performing companies are driven by high-performing teams staffed by high performing individuals.  Lowering the bar will start a domino effect that eventually will show up in company performance, competitiveness, and market-share.  Keep the bar high!