What is the most important decision any CEO makes, and how can science help you get it right?
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The Successful CEO
By Sofia Hjort Lönegård, Richard Moore, Christian Nyhlen
It is often said that successful CEOs possess certain traits and behave in certain ways.
However, these claims don’t hold up in practice. In the real world, each CEO succeeds, or fails, in a unique context. Therefore, there can be no general traits that lead to their success.
In our series «The Successful CEO,» Christian Nyhlen, CEO of Krinova Incubator & Science Park, and Richard Moore, CEO of MU, analyze how you, as a CEO, can ensure success, starting with the most important decision of all.
«The Successful CEO» Series
Almost half of new CEO appointments fail. To get practical tips for success as a CEO, Sofia Hjort Lönegård, Director of Communications at MU, interviews Christian Nyhlen, CEO of Krinova Incubator & Science Park, and Richard Moore, CEO of MU.
In addition to being CEOs themselves, Christian and Richard have spent decades working with CEOs of high-growth startups and global leaders from the public and private sectors. They’ve found that by applying science to workplace performance, more CEOs achieve success.
What is the most important decision any CEO must make?
As a CEO, the decisions you make are numerous and far-reaching. Many of them have a major impact on other people and your organization’s results. However, there is one decision that is more important than all the others.
While the Board of Directors is formally responsible for appointing a new CEO, it is the CEO who decides whether or not to accept the position.
This is the most important decision you will make as a CEO, and to be successful, you must get it right.
Alarmingly, nearly half of new CEOs make this decision wrong and don’t last longer than 18 months.
Widely cited research indicates that nearly half of new CEOs don’t last longer than 18 months, and the costs of replacing them are exorbitant (AESC ‘Minimizing Risk’, accessed 2021, paragraph 1).
As Christian says, summarizing the scientific research and his own practical experience:
«Whatever organization you take on the challenge of being CEO, congratulations on your new appointment. The bad news is that there’s only a 50% chance your appointment will be successful, so it’s very likely you won’t be in the position in 18 months. It’s practically a toss-up.»
The good news is, Christian continues:
«Despite the alarming frequency of failed CEO appointments, with all the damage this causes to you as a CEO and the organization you serve, there are concrete steps you can take to dramatically increase the likelihood of success.»
To make this decision correctly, you need to understand it for what it is, Christian comments: «Deciding to take on a CEO role involves getting a very important and difficult prediction right: determining whether you are the best fit for the organization. Instead of selling your credentials, analyze the situation and yourself. Start with what needs to be accomplished.»
What does a successful CEO need to achieve?
Richard comments that CEOs must succeed in multiple dimensions:
«A newly appointed CEO must succeed in three dimensions.
First, they must deliver results.
Second, they must positively impact the culture: the collective values, beliefs, and principles of the organization’s leaders and colleagues.
Only by delivering results and making an effective contribution to the organization does a new CEO create the opportunity to succeed in the third dimension: developing themselves, their team, and their leaders for the long term.»
Although every CEO role is unique, these three dimensions are always present: short-term results; impact on culture; and long-term development of the person, the team, and leaders. Christian adds:
«To overcome adversity and succeed as a CEO, you will need to achieve all three objectives, and understand that success in one at the expense of the others will not be enough. That’s why it’s essential to take a balanced, analytical approach to what’s required and objectively assess your suitability.»
How to Get a CEO’s Most Important Decision Right in Three Steps
Christian is used to helping boards and CEOs navigate this question. At a time when it might be tempting to sell out, he takes a step back and analyzes the facts:
«You’ll need to follow the steps you would for any other major decision: a thorough analysis of the CEO role you’re considering, obtaining advice from an appropriate expert, and assessing your own suitability objectively and based on facts. Doing this well will allow you to make a valid prediction: will you succeed in this CEO role, or is someone better suited for it?»
Richard comments that much is known about the science of human error in hiring decisions,
but what the science tells us isn’t always followed when CEOs decide which role to take:
«Accurately predicting success requires controlling for the errors found in conventional approaches to CEO appointments. It’s these errors that lead to the unpredictable outcomes Christian described. If you let yourself be guided by science—using knowledge and facts to make evidence-based decisions—you’ll make better career choices. In that case, when taking on a new CEO role, three main mistakes are commonly made: to overcome these, be precise, systematic, and objective.»
Step One: Don’t generalize, be precise.
To make an accurate prediction about success in a new role, you need to effectively predict how you will behave and perform in it.
Richard comments:
«Every CEO role has a specific need for results, context, and tasks that you’ve never experienced before. Therefore, when assessing whether you have the necessary competencies, carefully analyze the unique context of the new organization and determine what the CEO role requires now and in the future. Just because you’ve been successful as a CEO doesn’t mean this role is right for you. Science tells us that context is key in this decision.»
Christian goes on to point out some key questions that any potential CEO should thoroughly answer:
«The best way to think about a new role is to use the three-dimensional framework for leader success that Richard mentioned earlier. I express these in three questions that should be thoroughly answered:
Short- and long-term achievements: What are the immediate results and performance requirements of the CEO?
Impact on culture: In what environment must the results be achieved, and how should the new CEO impact the organization’s culture to ensure its success?
Long-term personal, team, and leader development: What future changes are anticipated in the task or environment, and therefore, what long-term development will be required?
Christian summarizes that a key point is knowing that success in one CEO role does not directly translate to success in another:
«Just because you’ve been a successful leader or CEO in the past doesn’t mean you’ll be successful in this new role. All it takes is a precise analysis to ensure that your self-selection decision is not based on stereotypical considerations or general ideas, but on specific, predictively relevant criteria.”
Step Two: Don’t Take Shortcuts: Be Systematic
Richard comments that the way to avoid overlooking important information in any decision, including vital career changes, is to follow a solid structure when analyzing the new position and its requirements:
“When evaluating the new organization you are joining, be sure to be systematic to avoid irrelevant information and analyze the position and its context thoroughly. While each CEO’s challenge is unique, the scope of what organizations need to achieve is not.
Effectively analyzing these five areas will ensure a systematic analysis of the organization and dramatically reduce the possibility of shortcuts that lead to a decision error:
– What is the market and context, now and in the future?
– What results need to be achieved and how ambitious are they, considering historical performance and context?
– What efforts are required in terms of short- and long-term strategies?
– What kind of organization is needed for success, and what is the gap compared to the current configuration?
– What leadership and staff capabilities are needed in this organization to achieve success at all levels, and what is the magnitude and nature of the gaps?
Christian goes on to emphasize that this type of analysis is common practice for CEOs, but it’s often overlooked when making career decisions:
“Systematic analysis ensures that information is properly understood and that the decision is well-founded. As a CEO, you constantly use these methods to decide on investment cases, purchase new IT platforms, perform important risk calculations, and so on. It’s important to do the same when making decisions about your career; a systematic analysis of the organization you’ll be joining as CEO is vital to making a good decision. Therefore, compile industry analysis reports, interview board members and leaders inside and outside the organization, and consult experts. Don’t take shortcuts only when effortful decision-making is most important.”
Step three: Don’t trust your intuition: be objective.
When researchers study selection errors, especially in senior positions, they find that more experienced leaders, such as CEOs, often perceive their instincts as having improved with experience. Christian comments simply:
«They’re wrong; instinct doesn’t improve with experience.»
Richard adds that once you’ve accepted that your gut feeling is likely a source of error, you need to be objective and thorough in your own self-assessment:
«To overcome impression-based decision-making (gut feeling), you’ll need to assess yourself as accurately as you’ve analyzed the new role. A fact-based assessment of the competencies and skills you bring to the CEO role, relative to your analysis of the specific job requirements, is a vital step. It doesn’t matter whether you like the people you meet at the interview, respect the chairman’s reputation, or feel affinity with the brand. The important thing is being able to clearly understand and describe whether you meet the performance requirements of the CEO role.»
Christian adds that a common source of error at this stage is failing to define the most important decision criteria:
“Focus on a small number of the most important facts to limit the amount of distracting information and concentrate on the fundamental criteria. What vital performance capabilities are required for success? Do you have them? And engage an independent expert who understands the business situation and the requirements of the CEO position; so expect, even demand, that your new employer properly evaluate you.”
In summary, Christian concludes:
“In all of our lives, science helps us enormously. By applying science to your most important decision as a CEO—whether or not to accept the CEO position—you will have a greater guarantee of success. After all, the only CEO who can succeed is the one in the right position.”
We hope you find this first article in our «The Successful CEO» series helpful. After following the steps and making the right decision by accepting your new appointment as CEO, it’s time to develop the most important plan you’ve ever created: your own stakeholder onboarding and management plan. And that’s the topic of our next article in the series, «What is the most important plan a CEO creates, and how can science help you get it right?»
CEO Decisions: What to Focus On?
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We do this by working directly with leaders and teams, through our community of high-level CEOs, our group coaching programs, and through conferences and writing.
Xquadrant is a leadership consultancy for world-class leaders committed to further multiplying their impact. We have clients on five continents, including some of the most successful and impressive executives on the planet. We believe in multiplying the impact of successful leaders because they have the potential to be an incredible force for good. They are the ones who will shape our future and create environments where people can thrive.
As a CEO, which decisions are truly yours to make, and which ones should you empower others to make?
This is a key question any CEO or senior leader must answer, and it’s a recurring topic of discussion among my clients.
Lack of clarity on this will result in disempowerment for your team and personal overload for you, which in turn will significantly reduce your impact.
Non-CEO Decisions
Let’s start with some obvious areas that aren’t CEO decisions and shouldn’t be your responsibility.
- Functional Decisions
First, don’t make decisions about anything that is directly the responsibility of a member of your team. It seems obvious, but I can tell you that there are a large number of CEOs who make marketing, financial, or operational decisions simply because they fall under their purview.
Make it clear: you have executives making those decisions; if you’re not comfortable with them making them, you should mentor them, develop them, or, if you haven’t succeeded, replace them.
- Cross-Functional Decisions
The second group of decisions are those that fall between two or more organizational units. For example, your sales director makes sales decisions and your marketing directors make marketing decisions, but what about decisions that affect both sales and marketing?
These might seem like ideal areas for the CEO to intervene, as a senior cross-functional leader.
Well, if you intervene there, you’re becoming the referee between two of your subordinates and exposing your team to constant pressure and jockeying for position, rather than collaboration and cross-functional problem-solving.
Instead, why not ask the two leaders involved to collaborate and arrive at a joint solution? As John Chambers (the legendary former CEO of Cisco) used to say, it’s worth reminding them that if they can’t agree on a viable solution that prioritizes the organization’s interests, they may have the wrong executives on their team…
If they’re uncomfortable with having them make those decisions, you should coach them, develop them, or, if they haven’t succeeded, replace them.
CEO Decisions: 6 Key Areas of Focus
So, what decisions and responsibilities remain for the CEO? It turns out there are quite a few.
- Executive Team Development
As the CEO, you must make decisions about the composition and development of your senior leadership team. Don’t outsource this task to HR; it is your main lever for increasing organizational impact. If you’re interested, check out our email series «How to Make Your Team Great.»
- Manage Your Direct Reports and Help Them Do the Same
In addition to developing the collective impact of the executive team, you also need to manage your direct reports. They may be experienced leaders, but if you believe senior managers shouldn’
