“Entry: This is the “honeymoon period”, the one time that a CEO has an open playing field. Most likely, it’s the period when he or she is most willing to learn, experiment, and innovate. It is also the point at which a CEO is prepared to take risks and make major changes, particularly if brought in as an outsider. During this time the CEO is unlikely to perform at full potential. This is to be expected: many new things have to be assimilated: she has to gain control over a new environment, get to know her various constituencies, and select key lieutenants, the people who will help make it happen. She may also have to “kill” wounded princes, executives who had hoped to get her job.
“Consolidation: After a new CEO has established what his or her leadership is all about, in terms of direction, strategy and style, the second phase, the period of consolidation sets in. If everything has gone well, he will start to see the fruits of all his work in the honeymoon phase. He has alliances with key stakeholders and top executives are committed to the course he has chosen. He has a good working relationship with the board. He delivers good results and is secure in his role. The traps here, of course, are complacency and rigidity; as they approach the end of this phase, some CEOs start to resist even minor changes.
“Decline: You know that a CEO has reached this stage in the cycle when the company has few or no new products planned for the near future and there are no initiatives to find new markets. Furthermore, there is no new blood coming into the top ranks of organization. Everyone sings to the CEO’s same old tune. The company is probably accumulating a lot of cash because top executives are running out of ideas about how to use it. It’s during this phase that a CEO starts having problems. He may have stopped listening to other people’s ideas. The job has become routine. Performance is slipping. In a fast paced industry, the problems tend to become apparent quickly; declining CEOs in a relatively stable environment can get away with it for longer.
“So what is to be done when a CEO starts to decline? The best scenario, of course, is if that the CEO himself realizes what is happening, acknowledges his increasing ineffectiveness, and looks for new horizons when the going is still good. Ideally, that is at the point when they are at that sweet spot of being at the peak of their performance, just before the decline.
“But many CEOs find it very hard to admit that the time has come to pass on the baton. Paradoxically, this reluctance doesn’t mean they stay closely involved; many actually distance themselves from day-to-day operations. The reason is that because the day-to-day job has become routine, they look elsewhere for mental stimulation.
“As long as they stick to safe pursuits (social, environmental or artistic causes, say), this is OK, maybe even reinvigorating. The danger is that they may instead look for stimulation by involving the company in risky new ventures — typically a big acquisition. This offers a quick and emotionally gratifying solution to the company’s operational inertia (that they’re often aware of) as well as their own sense of inner unrest, anxiety, and boredom. Deals are exciting, they impress the CEO’s peers, and they allow the CEO to pretend that he’s addressing the company’s growing problems.
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