Understanding and Minimizing CEO Failure

The CEO of the telecom company expressed shock and anger. After less than a year at the helm, he was being fired. He had a hard time believing what he was hearing and completely disagreed with the reasons. The chairman said the CEO had lost the confidence of his executive team. The CEO countered that they did not understand all he had accomplished and were ganging up on him.

When the chairman pointed out that the board had problems with the CEO’s failure to develop initiatives in response to the new, deregulated business environment, the CEO became defensive and listed the many accomplishments of his previous firm, a recognized leader in the industry.

The debate continued but the result was clear. There were no winners. The CEO departed feeling that he was misunderstood and unappreciated. By the time the company appointed a replacement, it had lost more than a year in the effort to become competitive.

Why do CEOs fail? How can someone who has had great success in a previous position have such a high failure rate as a CEO? How can a successful CEO suddenly lose his or her edge?

By understanding the reasons for unsuccessful appointments, we can take steps to prevent—or at least minimize—the failures.In a study of more than two dozen cases where the CEO was terminated, RHR International found four basic causes for failure.

1) Poorly Defined Position Requirements
In some cases, it is immediately apparent that the wrong person won the position. In the case of the telecom CEO, many on the executive team knew they had made a mistake within a few months.

RHR’s research found that in a significant number of instances, the company did not devote the time and energy necessary to define the skills and behaviors required of the new CEO. We found three different but related reasons companies neglected this step:
They relied too heavily on a candidate’s past success and either did not realize that the person’s success was in a significantly different context, or did not bother to look for any weaknesses.
The candidate was viewed as a hero who had saved the company from some disaster and was the uncontested choice for CEO.
The candidate was a long-term, loyal executive who deserved the position even though he or she may have had some faults.


Many companies fail to put enough effort into creating a realistic description of what qualities a candidate must possess in order to be successful. They often make erroneous assumptions. In our example of the telecom CEO, the board assumed that his experience as head of marketing for a company in the same industry would make him the best choice to lead their company forward and bring in some new ideas. What they failed to fully recognize was that his previous employer operated in a much different regulatory environment.

One common thread among failed CEOs is that the circumstances in which they were previously successful were significantly different from those they faced as CEO. In this case, the board also erred in its assumption that his experience as the senior marketing executive for the other company gave him the skill set necessary to meet the challenges he would face running the whole show.

Instead, the board should have defined the specific sets of skills and behaviors needed to be successful in the position and used this as a guide to finding the right person for the job. [An overview of the process for creating such a template can be found in Executive Insights, Special Edition, 1998, entitled CEO Succession.}

2) Improper Assessment of Candidates
RHR’s research also found that almost all the failed CEOs were not properly assessed before being offered the position. Such a process would have at least raised red flags regarding the potentially fatal flaws of the candidate.

Part of the problem lies in the fact that CEO candidates are very articulate, polished and successful executives who can stress their accomplishments and sidestep responsibility for shortcomings in previous positions. As a result, it is important to get a thorough and objective assessment of all candidates. [For a detailed description of how to assess candidates, see Executive Insights, Vol. 14, No. 1, entitled Reflections on Fit: Improving Executive Selection.]

For example, the fired CEO of the telecom company had some significant deficiencies. A CEO must deal with multiple priorities and manage complex issues. His abilities in these areas were never assessed. It was later found that not only did he lack the intellectual horsepower to deal with the problems he faced, but he also was unable to cope with multiple priorities.

Only with hindsight did the board realize that as senior marketing executive in a rapidly growing market, their new CEO was not called upon to use these skills. The company grew because it had a virtual monopoly in a rapidly growing market. The company’s main problem was how to meet demand, not how to attract customers and deal with regulators. It would have been relatively simple to ascertain if he had these skills.

When considering an attractive internal candidate, a board may not assess a loyal and deserving executive due to discomfort with evaluating a successful person they have grown to like and respect over the years. Unfortunately, what are minor executive flaws in a lesser position may be fatal flaws when a person must grapple with the myriad problems facing a CEO. Such skills as relating to employees, board members, stock analysts and customers are essential competencies for a CEO. An objective assessment is crucial to finding the right person for the job.

3) Changed Business Context
Sometimes, a drastic change in the way business must be done causes a CEO to stumble. The person may have been the right one when initially hired, but when the context changed, the person no longer fit the requirements of the position. Either a new competency was needed or a developmental need that was not a “killer” in the old context became lethal in the new one.

In a vast majority of the cases we studied, a significant change in the business context precipitated a chain of events that ultimately led to the CEO’s downfall. In general, the problem was that the CEO could not adapt his or her leadership behaviors to the new context. Contextual changes range from industries undergoing structural shifts, to companies entering into a different stage of the business cycle, to other events demanding significant changes in leadership style.

One good example is deregulation of an industry. Some in our study could not deal with the ambiguity brought about by a change in an industry with strict rules dictated by government guidelines. They were successful when the rules were clear and competition was abated, but over their heads when they had to become more strategic in their approach.

In other cases, economic turmoil precipitated the decline. Some CEOs were quite successful when the economy was robust or when they were in the upper phase in a cyclical industry. However, when times got lean, they were unable to adapt their leadership to accommodate the demands of the new environment. Some were not aggressive enough in cutting costs, or were too reluctant to curtail expensive pet programs.

In one instance, the CEO’s aggressive and somewhat abrasive style was tolerated in the good times, but when things got rough, he faced a virtual revolt. His abrasiveness increased and his executive team fought back, causing acrimony and paralysis. It was not long before the board was forced to take action.

Sometimes, surprise moves by a competitor are so successful that a CEO is forced to rethink many aspects of his or her business. This can call attention to an individual’s deficiency in the ability to effectively react. Instead of overseeing the running of a well-tuned machine, the CEO is forced to adapt his or her style to being more aggressive and fostering innovation. Such circumstances have doomed many a successful chief executive.

4) Changed Individual
In some cases, the lack of fit between the CEO and the needs of the company were precipitated by changes in the CEO as a person and not in the business context. The individual experienced a significant change in his or her priorities, values or self-image, resulting in a misfit with the organization’s needs.

Sometimes the changes were relatively sudden. For example, when his industry started to expand into global markets, one CEO became so enthralled with “going global” that it consumed him. He became enamored with the prestige and thrill of traveling and doing business abroad, causing him to neglect domestic business issues. He poured resources into non-US ventures, dismissing his executive team’s call for more restraint. His response to the feedback was that others were too narrow in their thinking and were stuck in the past. However, as the core, domestic business began to falter and his team became increasingly alienated from him, the board intervened and fired him.

In another instance, after a company won a prestigious award, the CEO became so caught up in speaking engagements and magazine interviews that she neglected oversight of the day-to-day needs of the business. By the time she realized what had happened, it was too late.

Sometimes such changes are gradual. CEOs go through different stages that are a function of tenure in the position. In general, CEOs are more open to change and experimentation at the beginning of their tenure as opposed to the end. This is true of anyone in any position. While these stages are not inevitable for everyone, the pattern is probably more prevalent in CEOs because it is “the end of the line.” That is, as CEOs experience success, gain power and become less accessible to feedback, their positions harden. They do not have to maintain their edge in order to be promoted to the next position. They lose their hunger. They are not the same leaders they were when they were first put in the position.

And who will give them feedback? Subordinates are reluctant to be critical of a person with ultimate power and a track record of success. Even activist Boards of Directors may be reluctant to argue with success, and individual members may also be reluctant to be critical of someone who appointed them.

CEOs are often very different leaders by the time they are at the peak of their power and they may no longer fit the needs of the company. However, a board usually will not act until something precipitates a slide in company performance.

Assessing Core Competencies is Key
Our research indicates that CEO failure is a significant problem for companies. However, there are processes companies can initiate that enhance the likelihood for success. With the active involvement of the board, companies can create a list of competencies the new CEO will need to lead the company’s strategic direction. In addition, desirable personal characteristics for any CEO include intellectual flexibility, emotional robustness, and an adroit combination of purpose and perspective.

CEO failure can never be eliminated, but it can and should be minimized. The cost of failure in terms of money and human endeavor is so great that the cost of improving the chance of success through a rigorous selection process is trivial.