Hire Slow, Fire Fast

Hiring the right CEO and letting the wrong CEO go are the most difficult, yet important, decisions that corporate directors can make. It’s an emotional, draining process fraught with political land mines, blame games, and time bombs. Let’s face it: Most directors would rather have an autopsy while still living than to fire their CEO.

But it’s a terrible task that directors are facing more often. According to a recent report by New York–based public relations firm Weber Shandwick, the turnover rate of chief executives at the world’s 500 largest companies by revenue increased 10 percent in 2007 according to the firm’s CEO Departures report. Currently, the CEO departure rate is 16.2 percent, which is near the global high of 16.4 percent set just three years ago. Although a certain level of turnover will always occur due to retirement and leadership succession, an increasing number of CEOs left involuntarily in 2007.

And replacing those CEOs can be difficult. Brad Smart, author of Topgrading: How Leading Companies Win by Hiring, Coaching, and Keeping the Best People, conducted research that indicates the average financial cost of mishiring an executive can be as much as 27 times his or her base salary. So hiring the wrong CEO who makes $300,000 a year could cost the company $8 million! And failing to fire the wrong executive (keeping a B or C player instead of an A player, as Smart would say) can be just as costly in terms of time wasted, opportunities lost, decreased employee morale, and disappointed customers and shareholders.

With so much at stake, why are directors too slow to fire an underperforming CEO, and too quick to hire a replacement? As the saying goes, “Nobody has ever bet enough on a winning horse.” However, by making a conscious effort to hire carefully and fire quickly, directors can increase their odds of having the right executive in the corner office.

Slow to Hire

Jim Collins advises in his book, Leadership Excellence, how to get the “right people on the bus.” Jack Welch, former chairman of General Electric, author, and well-respected business leader, writes about spending 50 percent of his time hiring, coaching, and developing his team. Many top-notch human resources consultants talk about using a Six Sigma quality approach to hiring. The common denominator in all of these best practices is taking a deliberate, thorough, careful approach to hiring the right executive.

The most common mistake I’ve seen as directors go about selecting a CEO is to repeat the same process that is used to hire all other employees: checking with their cronies or hiring a recruiting firm; reviewing résumés and bios; conducting interviews; maybe checking references, background, and reported accomplishments; and doing all of this with the least amount of time and effort possible.