The chance of a failed hire is a coin flip
Heidrick & Struggles conducted a study of 20,000 senior executive placements and found that 40% failed within 18 months. A failure meant the executive left, was asked to leave or was performing significantly below expectations.
This is not a “one-off.” In a Leadership IQ study with another 20,000 placements, the failure rate was 46%. The Corporate Leadership Council puts the failure rate at nearly 50%. The Harvard Business Review gave a range of failures on new management hires between 40-60%. Finally, the Center for Creative Leadership estimates a failure rate of 40% for new CEOs. Consistently, the chance of a new hire failure is close to even money. And the numbers are not appreciably better if that new hire comes from an internal promotion versus an outside placement.
Want more bad news? Consider the costs associated with a failed hire. Hiring costs, compensation while on the job, investment in the executive, severance and a new search can easily get you to 3 times salary. Add departures from disgruntled staff, lost sales, damaged customer relationships, etc., and a failed hire can cost 6 times salary or more. A bad CEO hire in a start-up can doom a world-changing idea.
It’s not the search firm’s fault
A perfect match doesn’t guarantee a good marriage; you must work at it. A headhunter will find the candidate who checks off all the boxes and delivers on the intangibles. But the difference between success and failure is all with the exec and the company. Here are a few “watch outs” for companies to avoid, to improve the chance of success, even before the executive starts.
1. In the recruitment process, don’t sell so hard that expectations won’t match reality. It is tempting to do (and it happens on both sides). But the risk of losing an attractive candidate must be tempered with the risk of losing a promising hire who becomes disillusioned.
2. Don’t describe the role as a “change agent.” Applying this label is akin to handing a bull the keys to the china shop. It invites executive behavior that doesn’t fit the organization. Change will come from any executive. Change that the organization can’t handle is not a good idea.
3. Consider the message you send when you negotiate an offer. There are limits you cannot exceed, but zero-sum positioning can leave a bad taste in the executive’s mouth when the relationship is just beginning.
Executives fail for many reasons, but it is seldom a matter of skill.
Why do new executives fail? It depends on whom you talk to. The University of North Carolina found that executives point out the following problems:
And the Leadership IQ found that organizations see a different set of issues contributing to failed executive hires.
The two lists don’t have much in common, which may not be surprising given the different points of view. But neither places the blame for an executive failure on a lack of expertise. The search process manages this very well. It’s the people issues that cause the problem.
A prescription for success – the external mentor
Both the executive and the hiring company have responsibilities to ensure success. The exec should prepare a 90-day plan before starting, yet be ready to jettison all of it Day 1 when the reality of the job hits. He or she should learn where the power lies, who are key influencers and which values really count. And work should start immediately to build bridges in the organization, up, down and across. The company needs to offer a robust on-boarding process (most last for a week or less), provide open avenues of communication and invest in the executive’s integration.
Mentoring is a successful tool for retention and improving performance. A study conducted at Sun Microsystems showed a 72% improvement in retention over a 7-year period when employees had mentors. But mentoring is not effective at senior levels. A mentee must be willing to be vulnerable, and few executives will put themselves in that position with a peer or a potential point of conflict.
The default choice has been to use an executive coach. But, increasingly, external mentors are being hired instead of coaches when the need is not remedial. Author/professor/coach David Clutterbuck offered these critical reasons:
1. Execs want somebody who knows what it feels like to be in a leadership role. Mentors provide this and coaches do not.
2. Mentors can act as ‘sounding boards’ to help execs think through complex strategic decisions. Coaches are seldom equipped to do this.
3. Coaches provide remedial help to solve problems. Mentors develop wisdom and help executives reach their potential.
Peer networks are also effective sounding boards for executives and means to avoid the loneliness of the position. It is easier to establish an intensive cadence with a mentor early on in an executive’s tenure. This is harder to do with peer networks, which require the logistics of putting a group together. A reasonable approach is to start with a mentoring relationship and to move to peer networks when a once-a-month check-in is enough.
A new executive joins your company with every hope of making a contribution. And your vetting process ensures that they have all the necessary skills. But over the next year or so, people issues (corporate politics, organizational culture and “immune system,” team development, peer relationships and unmet expectations) crop up to derail even the most talented executive.
Having a mentor who has the scars of their own experiences, who as Carmichael Lynch CEO Marcus Fischer said, “tells you not to step on the rake in front of you” and who keeps the uncertainties and fears of the new executive confidential can be the difference between success and failure.
Executive Springboard President Steve Moss shares learning from years as an executive and a mentor.