Coming out of a lengthy meeting with the board member of a Mumbai-based mid-sized finished-goods manufacturing company, I started to think about the true role of a CEO. Tiwari has been actively searching for a Chief Executive Officer who would be a good fit in his company for quite some time and hasn't had much success so far.
Medical doctors are mandated to complete their internship before being certified as qualified doctors. The Chief Financial Officer of a company has to be a qualified Chartered Accountant and should have experience in managing a company's financials. In comparison, the qualifications of a CEO are far more diluted and are often left to the judgment of the company's family members and the ‘inner circle'. The lack of clear qualification standards has made grooming candidates for the top job far more challenging than that for other positions for countless business owners like Tiwari.
According to Tiwari, there is a startling pattern to people's desire to “become CEO of a successful company.” The pattern is consistent amongst first-generation entrepreneurs, family-owned businesses and even among executives of large MNCs.
He cites the case of a company leader who, within a few months of his appointment at the helm of a family-owned polymer manufacturing unit, announced to the surprise of everyone that he had decided to immediately shift the company's focus to the export market. The company had been manufacturing at its Pune plant for two decades. Though his core customers had stayed with them for a long-time, the prospects for growth in the local market were marginal.
The younger generation, especially graduate MBAs from expensive universities, nurse unrealistic ‘CEO qualification' dreams. I am not challenging the vision or the credibility of this goal. In fact, I encourage everyone to dream big. I am also provoking you to act diligently by first understanding the pitfalls, the de-facto of current business practices, and rationalise the gaps in your abilities to grow as CEOs.
Imperatives for future growth
Company's directives: The Chief Executive Officer must have a clear directive to conceive (he may sometimes inherit) a strategic plan and take steps towards creating long-term shareholder value. This one factor often differentiates the amateur business owner from the professional CEO, whose primary role is to unwaveringly focus on longer term value creation. Let us be clear — the shareholder does not necessarily mean public stock offering, external investors, or other profit-takers alone. Immediate family , employees and customers are the shareholders of private firms.
Take the case of a Chennai-based software company with two owners — one, a seasoned software engineer, and the other, a qualified Chartered Accountant-turned-software professional. It wasn't until several months into our relationship that this client realised the core responsibilities of the CEO — as the marketer of a long-term strategic plan. To a vast majority, being a CEO simply means managing people, finances or inventory.
Demonstrable abilities: There are no realistic educational qualifications (including the much-hyped MBA programmes), vocational pre-requisites or ‘finishing schools' that prepare one for the CEO's role. This makes the position far more challenging for a person assuming the post of a professional CEO from the position of an amateur business owner.
Big companies adopt a selection and grooming process. Finding a replacement for Ratan Tata is a testimonial to this process. Fortune 500 CEOs undergo several years of intense, hands-on training before being considered for the role. It often takes years for an organisation to nurture individuals who can conceive of the company's future vision and manage results by selecting the best-fit CEO candidate.
As a member of an advisory board responsible for selecting an internal candidate for the CEO's position, I focus on the person's core ethics and abilities to work with scarce resources. All things equal, ethics and the ability to work under constraints, differentiates successful CEOs from others who may more often go back to the board seeking funds or cut operational costs to strengthen working capital. Finally, it comes down to one's ability to demonstrate action from the front-line that makes the CEO's role a successful one.
Irrespective of the industry, country or niche, CEOs have a more or less similar background. They have a reasonable formal foundation. Many have years of experience working in the industry, company or division before being considered for the role. Take for instance India's technology sector — a breeding ground for nerdy business owners who have amazing business vision and the will to execute. Yet, a vast majority of the ventures may underperform. There is one simple explanation for the underperformance — their business growth skills do not necessarily match their growth needs. CEO skill requirements vary significantly at every stage of the growth phase and must be refined in anticipation of the business-economic cycle. Hiring a CEO for aggressive growth, pre-IPO or takeover, requires the board to look at the large business-economic framework. Every aspect of the role must be pre-determined, harmonised and weathered before a candidate is announced.
Acting from the front-line: One aspect that really makes successful CEOs stand out is their ability to rationalise on their own and act upon bold decisions. In large companies this transformation process requires external experts to work closely with the company, pre-select CEO candidates, shape them through deliberate exposure to challenging situations and provide them with hand-holding support.
Many Indian managers have admitted privately the need for external support, a professional grade resource who can guide them to execute this on a higher plain.
In family-run businesses, senior members guide the younger generation for a considerable period, paying close attention to client relationships and finance during the transition.
The change is often smooth when the business hasn't significantly changed over long periods in mature industries such as commodities.
Tiwari's situation is not unique. It is clear Indian business owners need a support system to hand-hold them ahead of the company's growth, similar to facilities available for larger companies.
Running a company on cash-flow alone cannot grow a company. CEOs need professional help. It is no doubt lonely at the top without a confidant, a coach or a mentor.
No one will follow if the CEO does not know where he is going to take the company. Leaders need a GPS and a planned road-map to realise the shareholder's vision!