Risk Management at the Top

RN Associates met recently with PDI’s Senior Vice President Cal Oltrogge on this burning platform issue to better understand a way to mitigate risks while hiring a C-level executive.

RNA:  In your view how does a company manage the risks involved with hiring a C-level executive? 

CO: Managing risk. It is always a critical business requirement and even more so today given the turbulence that continues even with the signs that a recovery from the most severe recession since the Great Depression is finally underway. As business leaders make decisions in the face of uncertainty, risk assessment, and more importantly how to mitigate identified risks is top of mind. Invest in China? Invest in India? Build, buy or partner? Opportunities, costs, risks. What is the potential? What is the projected performance curve? When will pay back thresholds be reached? How liquid is this investment? All are key questions for any key business decision – including who to hire as the next CEO, CFO, CIO, Group Senior Vice President and other top leaders.
Opportunities, costs, risks. What is the potential?  What is the projected performance curve?  When will pay back thresholds be reached?  How liquid is this investment?  All are key questions for any key business decision – including who to hire as the next CEO, CFO, CIO, Group Senior Vice President and other top leaders.

RNA: Why do you position it in such a dramatic way?  

CO: Well, consider the following:

A.  CEO’s and their teams matter.  Consider Enron, Tyco, Lehman Brothers, and now Toyota…  Or Goldman Sachs, JP Morgan, or Apple…

B.  If A, then B… Selecting the next CEO, COO, and other senior executives, either from within or from outside, is one of the most important strategic decisions any business makes.

C. If A and B, then C… If CEO and other senior executive selection is a critical “bet the business” decision, then high quality, robust information for decision making is vital.

And if C…  Where are we now vs. what is needed…

RNA:  What are your thoughts on some of the existing practices on leadership hiring? 

CO:  Today,  Boards and CEO’s tend to rely on search firms to find, vet, and recommend candidates to supplement the short list of internal candidates that well-run companies typically have in view through their internal succession planning and leadership talent review processes.  But is this enough? The short answer is “no”.  There are several reasons for this “no”.  First, it is often difficult to compare internal and external candidates since decision makers have different sources of information.  For internal candidates, decision makers often have had some degree of exposure to the candidates, their capabilities and liabilities, and success record.  For external candidates, information is provided by a search firm and supplemented by rounds of interviews, and either formal or informal reference/reputation checking.  In some cases, this gives advantages to internal candidates (the “devil you know” syndrome); in others, to the external candidate (the “devil that you don’t know” syndrome).  This is, however, an “apples and oranges” situation where the lack of comparable data limits the comparability of information available to decision makers.

RNA:  What would be your advice to a smaller firm like ours that offers executive search services at C-levels?

CO: Part of managing risk is evaluation of options and engaging a search firm like yours helps to deliver on this - you provide a clear view of what the available best fit talent is and a view on their interest and potential fit for the role. Your ability to leverage your understanding of business and also your network of high level relationships allow you to source and do "first filter" screening. But given the stakes in a C-level hire decision, especially an external hire, well - the point is that due diligence requires going to a much deeper level of evaluation for fit - skills and competencies, style, values, and what the business needs for the future which is often very different from the past or even present situation and hence the need for a much more in-depth and robust assessment process.

RNA: So how do you see the future?

CO: Going from today to tomorrow, well, more and more companies will adopt the kind of CEO or C-suite assessment process which immerses both external and internal candidates in a standardized and hard-hitting “day in the life of a CEO”. This assessment allows “apples to apples” comparisons by putting all candidates in a fictitious C- level role for a day and observing their leaderships skills and styles. Such assessments use fictitious large global companies facing the many challenges of today’s global business and economic environment. In a mock setting, candidates step into the top job of these companies for a day, facing key C-level challenges, some of which they may have never faced. These simulations are not case studies or paper exercises but rather “live” meetings and working sessions where participants immerse in the business, engaging in real-time interactions with seasoned assessors who stretch and challenge them to show that they can perform effectively as a C-level executive.

RNA:  How likely is the “tomorrow” scenario?

CO:  Back to the top.  Managing risk in today’s, and more importantly, tomorrow’s business climate with its exploding global challenges and complexity is critical to survival.  Managing the risk of management risk, given the dismal failure rates for externally hired C-level executives in particular, demands a robust, rigorous, objective approach that allows “apples to apples”, level playing field comparisons of all viable candidates’ capacity to meet the demands of the future.   

Cal G. Oltrogge, Ph.D. is the PDI Ninth House Senior Vice President responsible for the Asia Pacific region. PDI Ninth House is a premier global leadership solutions company with distinctive expertise in accelerating leadership effectiveness to maximize organizational performance. PDI Ninth House has 43 years of experience in helping clients identify, manage, develop, and promote superior leaders across all levels of client organizations. PDI Ninth House provides CEO and C-level assessment services to clients globally. PDI Ninth House serves thousands of clients on six continents, including 70 percent of the BusinessWeek Top 100 Global Brands, 75 percent of the Forbes Global 100 and 80 percent of the FORTUNE 100 firms in the United States.

In this section we invite thought leaders to share their points of view. Please note that the views expressed in these postings do not necessarily reflect the views of the RNA team.

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