01 Nov 2004  Research & Ideas

The New CEO’s Wrong Message

Any new CEO who tries to wield power unilaterally will pay for it, according to Harvard Business School professors Michael E. Porter, Jay W. Lorsch, and Nitin Nohria. An excerpt from Harvard Business Review.

 

Bearing full responsibility for a company's success or failure, but being unable to control most of what will determine it. Having more authority than anyone else in the organization, but being unable to wield it without unhappy consequences. Sound like a tough job? It is—ask a CEO. Surprised by the description? So are CEOs who are new to the role. Just when an executive feels he has reached the pinnacle of his career, capturing the coveted goal for which he has so long been striving, he begins to realize that the CEO's job is different and more complicated than he imagined.

Some of the surprises for new CEOs arise from time and knowledge limitations—there is so much to do in complex new areas, with imperfect information and never enough time. Others stem from unexpected and unfamiliar new roles and altered professional relationships. Still others crop up because of the paradox that the more power you have, the harder it is to use. While several of the challenges may appear familiar, we have discovered that nothing in a leader's background, even running a large business within his company, fully prepares him to be CEO.

Through our work with new chief executives of major companies, we have found seven surprises to be the most common.

[Editor's note: The following passage describes Surprise Two: "Giving Orders is Very Costly." For a complete list of the seven surprises, see sidebar. The authors gleaned these lessons from participants in the New CEO Workshop held at Harvard Business School.]

The CEO is undoubtedly the most powerful person in any organization. Yet any CEO who tries to use this power to unilaterally issue orders or summarily reject proposals that have come up through the organization will pay a stiff price. Giving orders can trigger resentment and defensiveness in colleagues and subordinates. Second-guessing a senior manager can demoralize and demotivate not only that person but others around him, while eroding his authority and confidence. What's more, the need to overrule a proposal indicates that the strategic planning and other processes in place may be either inappropriate or insufficient. No proposal should reach the CEO for final approval unless he can ratify it with enthusiasm. Before then, everyone involved with the matter should have raised and resolved any potential deal breakers, bringing the CEO into the discussion only at strategically significant moments to obtain feedback and support. Ironically, by exercising his power to give orders, the CEO actually reduces his real power, saps his energy and his organization's, and slows down progress.

Ironically, by exercising his power to give orders, the CEO actually reduces his real power.

When CEOs wield direct power, they must do so very selectively and deliberately—and never without a broader plan of action in mind. Usually, power is best used indirectly, through the disciplined processes mentioned above (articulating strategy and so on). Together with tone and style, such processes enable the CEO to make effective decisions consistent with where he wants the company to go.

One of our new CEOs learned this the hard way. Soon after he became CEO, he was asked to approve a marketing campaign for the launch of a new product. The campaign was the result of more than a year's work by a division manager and his team. They had developed advertising, prepared promotional materials, crafted a sales and distribution plan, and assigned responsibilities for different parts of the plan. All that was needed was the new CEO's approval, which the executives assumed was largely a formality.

The CEO saw it differently. He felt that the company's advertising had become stale and that a makeover should start right away—and this would most likely mean hiring a new agency. He put the marketing campaign on hold until a new advertising plan could be developed—a decision that he hoped would send a strong signal about the changes he meant to introduce. Little did he realize that he had sent several other powerful signals as well.

Word of his order spread like wildfire. The CEO's calendar was soon filled with meetings with executives seeking approval of their plans. Some came to obtain consent for new capital expenditures, others for personnel decisions, and others on matters as mundane as whether to host a client conference. They had lost confidence that they understood the CEO's expectations, so they wanted to check with him before proceeding on anything. His calendar became a bottleneck, and organizational decision making virtually ground to a halt.

For a while, the CEO was oblivious to the high cost of his intrusive approach. As an outsider new to the company, he felt good about being part of all these conversations. He was now at the center of all the action. He viewed each meeting as an opportunity to communicate the new direction in which he hoped to take the company. But he began to recognize the impact of his actions when the division manager he had overruled came forward a month later with the news that he had decided to accept a job at another company. This came as a shock to the CEO, who, despite nixing the ad campaign, had been quite impressed with the other elements of the marketing program and the thoroughness with which they had been planned. What he had failed to understand was that he had undermined the manager's self-confidence as well as his authority with his subordinates and peers. As hard as the CEO tried to persuade him to reconsider and stay, the manager felt so demoralized that he was determined to leave.

A new CEO must be willing to share power and trust others to make important decisions.

Chastened, the CEO called a meeting of all his top managers the next week. He reassured them that they enjoyed his full confidence and that he had no intention of undermining their authority as he had done with the departing division manager. He candidly admitted that he might have been too precipitous in halting the marketing campaign, especially since he had not yet fully communicated his new strategy for the company. He identified the areas in which he wanted to make strategic changes, emphasizing that all this was a work in progress, to be completed with everyone's help. He clarified the issues on which he wanted to be consulted and those on which he would fully trust his managers. He created a task force to review some of the company's key management processes—planning, budgeting, performance evaluation, new product rollout, development of marketing campaigns, and recruitment of key employees—to ensure that there would be opportunities for early CEO input. Finally, he spent the next year working hard to make sure that his vision and agenda were clear to all employees, especially his senior management team. (We know this because he stayed in touch with us after the workshop, as many participants do.)

This CEO concluded, and we would agree, that it is rarely a good idea to unilaterally overrule a thoughtful decision that has cleared several other organizational hurdles. Indeed, a key indicator the CEO subsequently used to judge the health of the company's management processes was how enthusiastically he could approve the decisions that came his way. The need to overrule something is a sure sign of a broader organizational failure. Or, as hard as this is to admit, it may reflect the CEO's own failure to clearly communicate his strategy and operating principles. There are certainly some circumstances in which the harm done by moving forward with a major strategic decision that the CEO considers a serious mistake—a large acquisition, say—is greater than the harm done by issuing orders. But, as this CEO himself eventually acknowledged, the ad makeover could have waited.

A new CEO may need to put a stake in the ground to show that he's in charge and to let the organization know what he stands for. Giving a direct order (and especially undoing someone's work) is rarely the best way to do this, however. Instead, a CEO should look for ways to include senior managers and to promote agreement about decision-making criteria. At an off-site meeting, for example, the CEO can reveal his priorities and concerns by setting the agenda while giving his team a chance to participate and buy in. A new CEO must be willing to share power and trust others to make important decisions. The most powerful CEO is the one who expands the power of those around him.

The Seven Things You Need to Know

by Michael E. Porter, Jay W. Lorsch, and Nitin Nohria

Most new chief executives are taken aback by the unexpected and unfamiliar new roles, the time and information limitations, and the altered professional relationships they run up against. Here are the common surprises new CEOs face, and here's how to tell when adjustments are necessary.

Surprise One: You Can't Run the Company
warning signs:

  • You are in too many meetings and involved in too many tactical discussions.
  • There are too many days when you feel as though you have lost control over your time.

Surprise Two: Giving Orders Is Very Costly
warning signs:

  • You have become the bottleneck.
  • Employees are overly inclined to consult you before they act.
  • People start using your name to endorse things, as in, "Frank says…"

Surprise Three: It Is Hard to Know What Is Really Going On
warning signs:

  • You keep hearing things that surprise you.
  • You learn about events after the fact.
  • You hear concerns and dissenting views through the grapevine rather than directly.

Surprise Four: You Are Always Sending a Message
warning signs:

  • Employees circulate stories about your behavior that magnify or distort reality.
  • People around you act in ways that indicate they're trying to anticipate your likes and dislikes.

Surprise Five: You Are Not the Boss
warning signs:

  • You don't know where you stand with board members.
  • Roles and responsibilities of the board members and of management are not clear.
  • The discussions in board meetings are limited mostly to reporting on results and management's decisions.

Surprise Six: Pleasing Shareholders Is Not the Goal
warning signs:

  • Executives and board members judge actions by their effect on stock price.
  • Analysts who don't understand the business push for decisions that risk the health of the company.
  • Management incentives are disproportionately tied to stock price.

Surprise Seven: You Are Still Only Human
warning signs:

  • You give interviews about you rather than about the company.
  • Your lifestyle is more lavish or privileged than that of other top executives in the company.
  • You have few if any activities not connected to the company.

Excerpted with permission from "Seven Surprises for New CEOs," Harvard Business Review, Vol. 82, No. 10, October 2004.

[ Buy the full article ]