By Russ Banham
Yesterday’s chief executive officers achieved success overseeing an organization in a fairly predictable environment. On well-understood business platforms, they had clear sight into market challenges and operational problems, guiding the right decisions to solve them. Time was on the CEO’s side to make these determinations.
This is no longer the case today. The blazing pace of change ignited by the technological revolution has muddied the waters. Many CEOs cut from the old cloth feel ill-equipped to make quick and insightful decisions. The incoming crop of CEOs who are new to their companies are not immune to the challenges.
Some new insurance carrier leaders climbed the corporate ladder the traditional way; others were recruited from another carrier. In some cases, they were brought in from outside the insurance business. In an industry long resistant to change, all are being tasked as change agents.
One reason is clear. Property/casualty insurance carriers confront growing competition today from nimble insurance technology startups armed with sophisticated concepts and tools, lower operating expenses, no legacy technology, and a consumer populace eager for alternatives.
Last year alone, according to CB Insights, an eye-popping 173 InsurTech startups raised over $1.7 billion (Jan. 4, 2017 Insurance Tech Insights blog). They were funded largely by Silicon Valley venture capital firms and global reinsurers eager to get closer to the customer and compete directly with primary insurers. In the startups’ quivers are arrows aimed at traditional ways of underwriting, marketing and selling homeowners, renters, automobile, small commercial and cyber risk insurance—to begin with. More esoteric lines of insurance also are vulnerable.
This well-armed and growing competition is injecting needed innovations across the insurance value chain, making boards of directors across the industry think twice about the current leadership’s ability to fight back.
As new CEOs enter insurer boardrooms, the task before these individuals is sizable. “A new CEO is a sitting duck,” said Katharine Halpin, CEO of The Halpin Companies, a strategic alignment consulting firm. “Landmines are always simmering underneath the surface. If they blow up, it will always be in a moment where the CEO is unprepared.”
Adaptation and Change
Tough decisions are required of the industry’s new leaders. They must adapt to a new economic agenda as the political engine veers right, recruit people with specialized skillsets in a cutthroat competitive talent market, invest in expensive technologies in an environment where last year’s brightest invention may quickly dim and date, and establish an agenda of shared values to ensure cultural alignment as their changes take root.
And they must do all of this in record time.
“As the pace of change accelerates, CEOs have less time to deliver successful results,” said Andrew Schwedel, a partner at Bain & Company, where he is a senior member of the firm’s financial services practice.
On the bright side, a new CEO has a fresh perspective to assess the industry’s challenges and opportunities—a different set of eyes to effect strategic and operational changes. Still, these breaks with custom must be accomplished in a calm and methodical manner to appease customers, employees and shareholders. A delicate balance must be struck between what the new CEO sees as needed and how much change these stakeholders can handle.
We reached out to several management consultancies, business authors and academics for advice on how to strike this balance. Should the new CEO bust through the front doors armed with bold strategic and operational initiatives or be more deliberative and first take the pulse of the business? Are there tried and true methods for the new leader to gain traction quickly at reduced costs? What are the early stumbling blocks they should heed and avoid? And why do so many CEOs derail—where did they go off the tracks so others can avoid the same fate?
Substance and Character
Almost all of the interviewees when asked the last question had the same response. “One of the biggest mistakes a CEO makes is to think he or she must put their stamp immediately on the organization they now lead,” said Joel Peterson, chairman of JetBlue Airways and a consulting professor of finance at Stanford University’s Graduate School of Business, where he has taught for the past 25 years.
Peterson maintains that many new CEOs take the reins at a company consumed with their image and legacy. While all leaders need a healthy ego to do what they do, a high self-regard can deeply affect the teamwork needed to achieve business success. “The world doesn’t revolve around the CEO, much to their surprise,” Peterson said. “The CEO is the coach, who only succeeds if the [executive] team succeeds. The job is to take these individuals to a place they wouldn’t get to without the CEO’s guidance. Leave your ego at the door.”
This is particularly difficult for an outsider coming in to lead a business. A sense that all eyes are looking at them can be overwhelming. In reaction, they develop feelings of entitlement that distances the very people whose support they need to attain success. “They start to believe that their strengths and capacity alone got them to this level of success, without remembering all the teams that worked hard to drive their successes,” said Halpin, author of the new book “Alignment for Success: Bringing out the Best in Yourself, Your Teams and Your Company.”
Humility gives way to hubris. “They have the title, but they don’t know anyone, have no internal credibility and no power base,” said Jeffrey Pfeffer, Thomas D. Dee II Professor of Organizational Behavior at Stanford’s Graduate School of Business. “Their first and biggest mistake is their erroneous belief that the title gives them much.”
Another common mistake is the failure to conduct in-depth research into the organization’s history, value proposition, past strategy, challenges and opportunities prior to Day 1 on the job. “They’re in such a hurry to get to the races, they come in with little knowledge of the company’s track record—its strengths and weaknesses,” said Greg Galeaz, insurance practice leader at PwC. “You need to know the problems before you can attack them.”
He advises new CEOs to undertake this research both before and after assuming power to craft a 100-day plan that will not become an agenda of priorities until Day 101. During this period, the CEO should reach out to senior executives and department and functional managers to understand the company’s nuances—the products, processes and systems that are in working order or broken.
Above all other considerations, a damaged culture must be repaired or changed. Every company has its own unique culture, one that formed when the entity was conceived. The founder’s ideas and aspirations inspired others who believed in the intrinsic value of the business. These individuals subsequently hired people who shared their beliefs and attitudes. Gradually, a workforce culture coalesced to characterize the company and guide its practices.
Over time, however, a wrong turn by the company may impair its culture. “If the company isn’t growing, there may be toxic elements in its culture, where the best idea no longer wins, only the most powerful people,” said Peterson. “In such cases, the culture needs to be fixed.”
In other cases, the culture may actually be quite robust, “but the new CEO rushes in acting like the patient is in danger, monkeying with a culture that is working just fine,” he added.
This outcome is often the case when the corporate culture of the business doesn’t jibe with the culture of the new CEO. “The CEO introduces fresh ideas of what it will take to be successful that result in [workforce] inertia when he or she tries to execute them,” Galeaz said.
Understanding where the cultures diverge will inform how to bridge the differences. “Culture is the glue holding together an organization,” said Peterson. “A new CEO must take pains to understand the culture of the organization to determine how best to execute change with the full support of the management team.”
A CEO nurtured within company ranks typically understands the condition of the business and how to improve its prospects. A CEO from outside the industry has a steeper learning curve to flatten. They also lack credibility in the organization. “Trust takes time to build. There are no shortcuts,” Halpin said.
Outside leaders tend to recklessly rush in with ideas carved in stone. There’s a reason for this tendency. “When the board sets up a CEO as a change agent, the person has a predisposition to move too quickly, hearing the ‘tick tock’ of the clock to deliver the changes that will turn the company around,” said Kimberly Whitler, assistant professor of business administration at the University of Virginia’s Darden School of Business.
Their impatience comes with a cost. “You need to know what’s not working before you can fix it,” Pfeffer said. “Otherwise you may change the things that actually are working.”
Trying to do too much too fast is a common mistake with all new CEOs, Schwedel said. “A CEO can only accomplish a few big things over their term at the top,” he explained. “This requires that they be really disciplined insofar as their priorities. Not every problem can be fixed tomorrow.”
To determine these priorities requires an honest assessment of the organization—the stability of its business model, its competitive position and the strength of its financial condition. “In some cases, the company may face an urgent crisis—plummeting earnings, a cash crunch or an imminent regulatory change wiping out a big chunk of revenue,” Schwedel said. “In others, there may be near-term issues that threaten the ongoing viability of the current competitive advantage, but there’s no burning platform.
“In both cases,” he recommended, “it’s far better to move too quickly than too slowly—but not without the facts.”
“Collect as much information as possible about the company,” said Peterson, author of the new book “The 10 Laws of Trust.” In this activity, he advised new CEOs to “put their ear to the ground and listen without an agenda.”
Human Capital Is the Most Important Capital
Trust is everything in business, particularly when it involves the executives and other employees charged with bringing to fruition a new CEO’s strategic objectives. Fear is the enemy of trust, however.
“If executives and other employees experience fast-paced changes after decades of stability, they may make assumptions about the company’s future and their own job security,” Halpin said. Once fear permeates a work culture, people become “reactive,” she maintains. “They clam up and become distrustful of management.”
The outcome in this case is that senior executives may have an agenda for the new CEO to fail. “The solution is to win over the key people who want you to succeed,” Peterson said. “Fortunately, many CEOs have the ability to pick the right team.”
Patience is required in this senior management selection process. “If the old guard doesn’t buy in immediately with your new strategy, give them time,” Galeaz said. “Be prepared for resistance. Maybe some executives had expected to be the CEO and are still hurting. People who are not like-minded at first may eventually fall in line. Changing the culture takes an evolutionary process.”
At some point the CEO may accept the need to hire executives from outside the organization. “Typically, these are individuals they’ve gone to war with in the past,” Galeaz said. “That’s fine, as long as the new CEO takes the time needed to get current executives and other employees on board with the strategy first.”
To capture the hearts and minds of these individuals, Pfeffer recommended that a new CEO ask what he or she can do for them, as opposed to what they can do for the CEO. “Find out the little irritants that make everyone’s jobs miserable,” he explained. “Maybe the place needs to be painted or the food stinks or they need new PCs. What will make their work lives better? Once that’s taken care of, then get to the meatier things, asking questions like, ‘What might take us out of business in the next five years?’”
The goal is to get the right people in the right roles focused on the right projects—right away, Halpin said. “This requires assessing each key executive’s strengths and matching their role with those strengths,” she added.
In these evaluations, an open mind is needed. “Make it safe for people to give feedback,” Peterson said. “And reward the negative feedback, as it may be the most honest information you get.”
Asked if an offsite meeting of top executives is the rightful way to acquire this knowledge, Peterson demurred. “Offsites tend to be superficial, people looking around at their colleagues wondering who’s going to make the cut and who isn’t,” he said. “I would wander the halls instead, dropping by each person’s office for a chat. Don’t ask them to come to your office like you’re the school principal. Be on their turf.”
The importance of earning the trust and support of the executive team cannot be overstated. “Most strategic failures happen right at the implementation of strategy,” said Vilmos Visangyi, a professor of strategic management at Penn State University. “The reason is the new CEO was unable to get people to buy into their priorities for change.”
A case in point is Ron Johnson, the successful head of retail operations at Apple, who was brought in as a change agent CEO by the board of J.C. Penney. “Ron came in and didn’t really understand the Penney work culture or its customers,” Whitler said. “He hired a new president, laid off lots of people, and got rid of couponing and discounting, which longtime Penney consumers loved. He had bold plans for change but had failed to test his ideas in advance. It’s a textbook example of what not to do as a new CEO.”
Johnson’s failure as an outsider CEO is writ large across industry. Too many CEOs come into a company thinking what worked for them in the past can be easily replicated. “CEOs tend to see the world through the repertoire of the skills they’ve already developed,” Visangyi said. “A product development guy sees a company’s problems in terms of product development. If the CEO is a marketing guy or an operations person, it’s the same thing. One’s past experiences make it difficult to adapt to the new business and its singular challenges.”
The solution echoes the same refrain—a patient and diligent approach to change. “It really does take 100 days to take in what’s really going on,” Visangyi said. “If you’re coming into a company as a change agent, understand that you need to understand its culture, cultivate relationships with the employees, and figure out what’s working and not working before you implement change.”
Successful CEOs know this because they have the ability to be empathic and introspective as well as hard charging. They leave their egos at the door, “humble enough,” as Whitler put it, “to know what they don’t know.”