How many times has a CEO candidate seemed perfect in every way? They have exceptional degrees, experience, and a proven track record that completely matches the job description. Yet 12 months into the role, the CEO begins to fail. Maybe they struggle with the board of directors, or they cannot align their own management team. In a time when CEOs are being asked to quickly adapt and make the most of a volatile environment, hiring practices are becoming laser-focused in finding a CEO with specific skills and experiences. But too often, the hiring leaders are not considering the environment in which their newly hired CEO will be operating.
I have been a chief human resource officer for large publicly traded and private equity-backed companies throughout my career, and now serve as the CEO of a leadership advisory firm where we assess CEOs and organizations. Over the years, the organizations that I have worked with have tried many different approaches to assessing CEOs to make a truly predictive hiring decision. After learning from thousands of hiring processes, I found the most underrated and rarely assessed aspect of a successful CEO hire: context.
The 5 most important contextual considerations when hiring a CEO
Here are five of the biggest contextual considerations when hiring CEOs--and how they shape the organization's success (or failure).
1. Strategic plan or investment thesis for the company. What are the critical initiatives and areas of focus that must be carried out in the near-to-midterm by this CEO? Is it a growth/value creation plan or a turnaround? Does the company need to cut costs or add infrastructure and overhead? Dropping a growth CEO into a turnaround business (or vice versa) can lead to confusion and poor results. When the hiring team understands the larger context of what the company is trying to accomplish and how they need the newly hired CEO to function, they can align everyone's expectations in the right direction.
2. Expectations and function of the board. Is the board completely aligned on the strategic direction of the company? Are the board members more advisory or governance-minded? Are there board members who can provide some level of strategic advising or direction for the CEO? If there is a newly hired first-time CEO walking into a situation with a misaligned or dysfunctional board of directors, that is a recipe for disaster. Make sure the organization's own house is in order before bringing in a talented but untested CEO.
3. Health and wellbeing of the management team. Will the management team need to be upgraded? If so, which areas? Or is this management team healthy, with some key players needing to be optimized and further leveraged? Companies need a clear understanding of whether they are bringing in a CEO to develop, retain, and align talent, or if the new CEO will focus on building and upgrading talent. These are often two different skillsets.
4. State of the industry and market. Do not bring a "peace time" CEO to stabilize a company when a "war time" turnaround CEO is needed. Also, be wary of hiring a new CEO who likes to stir the pot and break some glass, if the market or industry cannot bear it.
5. Company culture. What is the history of the company? How does the company operate? What are the company values? What hired executives failed in the past, and why? "Organization rejection" of a newly hired CEO due to a culture misfit is common. Some CEOs have a great track record of success, but only in a certain type of company culture. For example, a CEO might have been successful in a big system environment, but might struggle after being placed into an extremely hands-on role where they have minimal systems data and process support. Or a CEO with a background in scrappy startups who gets hired by a larger organization might get impatient with the larger layers of bureaucracy and formal processes.
Context matters and must be assessed as part of the hiring process. Along with the candidate's own individual skills, strengths, and personality characteristics, the company should think carefully about the contextual factors to help determine whether a CEO is likely to succeed.
Understanding context: Overcoming biases when evaluating CEOs
My firm, Summit Leadership Partners, commissioned a study of private equity executives and portfolio company CEOs in 2020. The study found that the top three factors for CEO success were the ability to establish a high-performing management team, building a trusted and transparent relationship with the board of directors, and creating a clear and actionable strategy. These factors are critical when assessing or preparing and supporting a CEO for success. So why do so many boards and investors get it wrong?
One big reason is bias during the hiring process. People tend to have certain biases, whether they realize it or not, and the biases sometimes interfere with good judgment around hiring decisions.
- Like-minded bias: People tend to give higher ratings to CEO candidates that are like them or that express similar viewpoints.
- Recency bias: Sometimes the CEO candidates who were interviewed last in the process will receive the highest ratings.
- Halo effect: A CEO candidate has one great attribute that overshadows all the other reasons not to hire them.
Organizations also tend to over-index pedigree experiences, pedigree backgrounds, and other factors that may not impact success in the role and can perpetuate a lack of diversity when making CEO hires.
Looking at context helps organizations overcome bias, illuminate the bigger picture, and be more inclusive when considering CEO candidates. Sometimes superstar CEOs fail to thrive in a new role of leading companies because the strategic environment or other contextual elements were the wrong fit. In other situations, candidates who looked less compelling on paper, or who did not interview as well, have become highly successful CEOs because they have the right fit for the context of the role.
Hiring managers need to think more broadly about context and consider multiple complex contextual factors as part of their CEO hiring decisions. Making a successful hire is not just a matter of choosing the right CEO with the right skills and experience. It is about thinking about the larger environment, culture, and strategic circumstances in which that person needs to operate. Assessing for context can help increase an organization's probability of making the right CEO hire.
Dan Hawkins, Founder and CEO, Summit Leadership Partners
Dan advises Boards, CEOs, investors, and business leaders on strategy execution and value creation through leadership and organization performance.
After a successful corporate career as CHRO with companies and businesses ranging from $1B to $20B in revenue, Dan founded Summit Leadership Partners to help growth-oriented companies and business leaders scale and improve performance. He has deep expertise in leadership, strategy, assessment, executive, and organization development.
Under Dan's leadership, Summit has become the go-to leadership advisory firm for PE investors and mid-cap companies and has been recognized as one of the fastest-growing consulting firms by Inc., Consulting Magazine, and Charlotte Business Journal.
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Many founders of small businesses decide, at some point in their career, that they’d like to concentrate on another area of their business—or maybe on another business entirely.
If this is you, it might be time to hire a CEO for your company, and delegate some of your critical responsibilities.
But there are many questions that might feel overwhelming to you at the moment: What skills should I look for?
How do I reliably evaluate them? What are the must-have qualities of a CEO? How can I pull this off successfully?
One of the best ways to assess your candidates’ preparedness to take a leadership position in your company is to use skills assessments to test for specific skills.
In this article, we’ll look into a few key points to consider when hiring a CEO, and also discuss the top qualities and skills you should be looking for, as well as how to evaluate your candidates.
Table of contents
Qualities to look for in a CEO
There are a number of key qualities you need to look for when hiring a CEO.
For example, the successful candidate needs to:
- Be aligned with your business in terms of values and culture
- Have a deep understanding of your industry
- Be an excellent communicator and team player
- Be goal-oriented and driven
- Have a proven track record
- Have strong decision-making skills
Those are fundamental qualities of a CEO, but before you start the hiring process, you should be certain that you actually need to hire a CEO at this stage.
When should you hire a CEO for your small business?
A CEO (chief executive officer) is the highest-ranked manager in your company and they will lead it, define goals and objectives, and work towards achieving them by managing your team and assets.
For many small businesses, the founder also takes on the role of a CEO, but, as the business grows, it might make sense to hire a CEO and focus on other key business functions and areas.
Hiring a CEO means finding the right person who’ll be able to lead your company and help it grow. It includes delegating some of your key business responsibilities to them and making sure they’re fit for the role, but before that, you need to know whether it’s the right time to hire a CEO.
If you find yourself in one of the following three situations, it might be the right time to hire a CEO for your small business.
1. If you don’t have the right business experience
When you, as the founder of the company, don’t have enough experience, it might make sense to hire someone who has the critical business experience that would enable them to lead your company efficiently.
Founding a company doesn’t mean that you have all the connections, networks, and operational knowledge to manage it in the best possible way. So, hiring a person who can scale and grow your company might be the right decision if you don’t have the right experience and skills to lead it.
2. If you’d like to not do everything by yourself
Focus on the things you’re good at: you, as the founder, shouldn’t have to do everything by yourself. Find a CEO who can complement your skill set and who can help you grow the company.
Usually, founders have cofounders that help them with this, but you can also hire a CEO to help. According to Simon Sinek, author of Start with Why, founders often tend to fall into one of two categories: the ‘Why’ and the ‘How’ founders.
The Why founders focus on the vision for the company and the big picture, providing direction, motivation, and a clear goal.
The How founders focus on the operational parts of achieving that mission, vision, and goal.
For example:
- Steve Jobs (The Why) had Steve Wozniak (The How)
- Bill Gates (The Why) had Paul Allen (The How)
- Martin Luther King (The Why) had Ralph Abernathy (The How)
- Walt Disney (The Why) had his brother Roy Disney (The How)
- Herb Kelleher (The Why) had Rollin King (The How).
It doesn’t matter if you’re the Why or the How type — what matters is finding the right person who’ll complement your skill set, so your company grows. And this is where you should hire a CEO.
3. If you want someone to work on the business while you work in the business (or vice-versa)
Sometimes, you have expertise that’s required to work in your industry, but you lack the overarching business experience to work “on” your business and its growth, and managing sales, marketing, negotiations with stakeholders, and so on.
Let’s assume you have a writing business. You are an expert writer, knowing the ins and outs of composing content in your niche. But what you’re not accustomed to is all the marketing that’s required to put enough eyeballs on it, all the negotiations required with the publishers, and all the legal/operations needed for everything to run smoothly.
In that instance, you might want to hire a CEO and outsource all the tasks related to building and growing your business, and actually concentrate on the work itself.
9 skills to look for when hiring a CEO
Once you’ve decided to hire a CEO, look into each of your candidates’ skill set and see if they’re a match for your small business.
A CEO needs to be versatile and have a number of critical skills to manage a business successfully.
Let’s look into each one.
1. Excellent communication skills
A CEO needs to be able to clearly communicate his thoughts, vision, and company’s mission to all employees, stakeholders, and partners. Clarity of communication needs to be top-notch for a CEO so they can successfully lead the company on all fronts.
2. Adaptability and open-mindedness
A CEO needs to be open to new ideas, approaches, and systems to enable the growth and adaptability of the business.
If a company doesn’t grow (through improvement), it’s likely that it will fall back and do worse on the market. So the CEO needs to be open-minded to new ideas that come along and decide how to implement the ones that make the most sense for the business.
3. Teamwork and collaboration skills
The CEO you’ll hire will need to work with other C-level executives, employees, and external partners. That’s why they need to have excellent collaboration skills that allow them to work well with others to create better solutions.
4. Approachability
Long have passed the times where the CEO would sit in the ivory tower, completely isolated from everything happening on the company floor.
As a CEO of a small business, they need to be approachable by employees and other managers to improve operations and know what’s going on in the business on a daily basis.
Toyota’s employees gave around 250,000 suggestions on how to improve processes in their factories and around 70% of them got adopted. It pays to listen to your employees.
5. Transparency
A CEO needs to lead the company transparently. This is not just oriented toward shareholders, but also towards the employees of the company: They need to know where the company is headed and what the current situation is like.
6. Growth mindset
Growth mindset is a term coined by Carol Dweck stating that the potential a person has is almost unlimited, factoring in their determination, will, and hard work.
A growth mindset is all about knowing you’ll be able to figure things out and that you can improve even in areas where people think it’s impossible.
7. Strong business ethics
A business leader needs to be ethical in their conduct and lead the business the same way. Too many times have we seen the downfall of CEOs who didn’t operate on the highest ethical standards and principles.
8. Strong decision-making skills
A CEO’s job is about making decisions that impact many people, and that can make or break the business. That’s why a CEO needs to be decisive in his actions and lead his employees toward the company’s vision with confidence and clarity.
9. Creativity and innovation
Companies need to innovate and disrupt their industries to grow and outperform their competitors.
So, a CEO of a small business needs to be creative in their approach and innovate processes and operations to grow the business and push it forward.
How to evaluate your future CEO’s skills
Having a list of skills that a CEO of a small business needs to have is one thing, but objectively evaluating those exact skills to see if an applicant really has them is a completely different task.
That’s why we have developed a comprehensive test library featuring hundreds of tests that companies can use to test and grade their candidates objectively.
You can combine up to five skills tests into an assessment, based on the specific requirements for the role, and use the assessment as the first step of the selection process to shortlist the best candidates.
When it comes to CEOs, you should use a combination of a few tests to find out if candidates have the above-mentioned skills. For example, you could use TestGorilla’s:
These tests are a good way to test a candidate for the skills needed to be a CEO of a small business. Also, you can add more tests to your hiring process. You can find all TestGorilla’s tests in our test library.
Once you perform an initial assessment with the help of skills tests and shortlist your best applicants, you can use a combination of a few different hiring tools to further narrow down your selection. For example, you can:
- Use structured in-depth interviews
- Do job simulations
- Assess applicants’ track record
- Perform detailed reference checks
Use skills tests to assess your potential CEO and hire the perfect match
Hiring a CEO is always a stressful process because you need to find a person who’ll continue leading your company and you want to find the best possible candidate.
That’s why using tests that assess the skills of your candidates objectively and bias-free is crucial. Eliminating “gut feelings” and instead making data-driven decisions will help out when hiring a CEO for your small business.
Hire the best CEO — your company deserves it.
With TestGorilla, you’ll find the CEO hiring process to be simpler, faster, and much more effective. Get started for free today and start making better hiring decisions, faster and bias-free.