For advice and guidance regarding how to handle a crisis such as a pandemic shutdown, a financial meltdown or a supply chain breakdown, CEOs reach out to their board of directors, particularly to those members who have a deep understanding of such crises because they have dealt with similar ones before. In particular, they call those “sitting CEO” directors who are concurrently dealing with these challenges. For example, when COVID hit, these directors got the first call.
Fifty years ago, I wrote my Harvard Business School doctoral dissertation on “The Chief Executive Officer,” a title that was then just coming into wide usage. I examined the nature and scope of the CEO's role, which was, and still is, much broader and much more complex than other management positions. During the course of my career, first as chairman and CEO of the Hay Group and later as chair of several comp committees (now often called HR committees), I analyzed, evaluated and rewarded the unique role of the CEO. The job is much bigger than the next-highest-ranking position and is compensated accordingly, often by an order of magnitude. Though not all CEOs are extraordinary, in the context of their organizations, their job is.
When recruiting a new director, sitting CEOs are often preferred but are thought to be hard to recruit. Therefore, most board searches start out by developing a matrix that identifies particular experiences (such as international assignments) and specific competencies (like risk management) that are important for informed board deliberations. In recent years, the “skills matrix” has been enhanced with DEI qualifications and ESG talents to assure board composition with greater diversity and wider experience.
Identifying gaps in the board's skills, experiences and backgrounds is important when recruiting new directors. One very important gap could be CEO experience. Sitting CEOs and recently retired ones bring a unique perspective that can be very valuable to the board in general and to its CEO in particular. They bring a top perspective and a deep understanding of the board's principal duties and responsibilities, notably strategy assessment, CEO succession, M&A knowledge and talent management, including executive compensation. A board needs a balance of sitting CEOs and directors who provide specific talents and backgrounds. For more than three decades, Directors & Boards has kept track of board appointments. Over the last five years, sitting CEOs and recently retired ones make up about a quarter of new directors, according to our Directors Roster.
When undertaking a director search for a sitting CEO, I recommend hiring a search firm that can help your nom/gov committee identify candidates who have the following five qualifications:
- Currently running a company with sales 75 to 150% of your company's.
- A deep familiarity with your industry in terms of its markets, customers and competitors.
- Pertinent experiences relevant to your company, such as international assignments.
- Significant knowledge of your technologies and emerging innovations.
- A level of board experience, including with private companies and civic and charitable organizations.
Since many boards limit their CEO's outside board service to one or two companies, the search should focus on CEOs who are on no other corporate board than their own.
I thought identifying and recruiting sitting CEOs would be very difficult, particularly for smaller firms, but, to my surprise, I have found them to be accessible. I recently participated in the successful recruitment of a sitting CEO who has deep familiarity with the business as well as the judgment, values and demeanor to fit well with the company's collaborative and collegial board. This new director is on the CEO's speed dial and, in times of crisis, will be one of the first to be called.