What sets outperforming CEOs apart and how boards can help

Every organisation undergoes leadership transitions in its lifetime; many of these changes are natural transitions as old leaders pave the way for new leaders when their contracts end or they retire. Sometimes, the changes are abrupt because of resignations and in rare cases, removals. Moreover, a slowdown in business, shifts in resources and ownership, rapid transformation in technology, changes in consumer preferences, and shifts in market dynamics compel organisations to re-evaluate and re-plan their business models.

Many organisations respond to these transitions through leadership and organisational changes. It is believed that a new leader with fresh perspectives and ideas will improve agility. This is necessary to adapt to rapidly changing situations, maintain its repute and market share, and achieve sustainable success.

However, leadership changes often result in speculations and anxiety amongst investors and other stakeholders as they associate it with a shift in an organisation’s strategy, philosophy, culture, and environment. These shifts can have implications on the organisation’s top line and bottom line. There are concerns over whether the transition will be smooth, the organisation will cope with the change, and the incoming leader will perform better than the outgoing leader.

Given the complexity associated with a CEO succession and organisations’ reputation at stake, the board plays an important role in managing transitions. It has to ensure the selection of the right person and a smooth transition of the new CEO. The board must also lay the groundwork for the newly appointed CEO to succeed. This involves engaging with the incoming CEO to familiarise the person with the company’s culture, policies, and dynamics; and specify a mix of short-term and long-term objectives for the CEO.

In other words, the outcomes of succession are almost always a shared responsibility.

The purpose of this research was to establish and understand if a relationship between leadership changes and company performance existed in the Indian context. In addition to analysing the relationship, we also tried to understand the profile of better performers and explained the observed performances with business strategies they pursued.