3 Telltale Signs It’s Time to Rethink Your Executive Team

WHEN A CEO first assumes their position or joins a new company, they’re often quick to make changes to the executive team, creating a group of trusted advisors who will drive their strategic agenda. But once the CEO has been in place for a few years, this dynamic changes. Replacing these hand-picked team members becomes a highly unpleasant process, one that CEOs avoid at all costs—despite clear signs it’s necessary.

Our research on CEOs and their senior leadership teams reveals that regularly reevaluating and adjusting the leadership team is crucial for optimizing a company’s performance over time. To decide if “now is the time” for a change, CEOs must watch for three telltale signs.

Sign 1: A change in the business environment

The most obvious signal that it’s time for a change is a large-scale shift in the business environment.

In recent years, many industries have been disrupted by technological change. These changes have necessitated new capabilities and forced even the most established players to make radical departures from their business models.

Take, for instance, the automotive industry. The electrification of vehicles and increasing reliance on computer software, rather than mechanical parts, have upended the knowledge and capabilities needed in the industry. Simultaneously, the traditional automotive business model—built around individual car ownership—may soon be replaced by fleets of autonomous vehicles owned by service providers rather than individual people.

Companies are also facing heightened expectations about their role in society. Stakeholders and shareholders alike expect businesses to make a positive impact on the big challenges our planet faces, such as climate change, redistribution of wealth, and more equitable ways of operating and performing.

Adding to the already increased complexity of the business landscape, recent events like the COVID-19 pandemic and the war in Ukraine have forced companies to fundamentally rethink where and how they operate and how they can build resilience to change.

When an organization faces fundamental shifts like these, simply adding a chief digital officer or chief sustainability officer to the leadership team is no longer sufficient. Instead, leaders must reassess their leadership teams, from redefining existing roles to creating new roles to altering how different roles interact.

This was the challenge Mary Barra, CEO of General Motors, faced when she took over as CEO. Barra found an organization that not only had fallen behind the competition but was also largely unresponsive to the market. To initiate the changes that would make GM relevant once again, Barra overhauled the leadership team’s composition, culture, norms, and way of operating, converting the team from a group of disconnected individuals into an integrated group empowered to deliver on GM’s goals.

Sign 2: A new CEO mandate

After accomplishing their initial objectives, successful CEOs often face a new challenge: defining a mandate around a new set of goals. Doing so requires CEOs to not only reinvent themselves and their organizations but also to rethink their executive teams.

Bracken Darrell, CEO of Logitech, a Swiss-American computer peripherals and software manufacturer, faced this very challenge.

Initially, Darrell granted the Logitech leadership team a high degree of independence, treating the company’s various businesses as individual startups. However, following several acquisitions in 2018 and 2019 and rapid growth during the pandemic, he defined a new set of goals that required a higher degree of coordination and centralization in his team.

As Darrell explained:

I am planning to centralize a few things. This will change the dynamic. When decisions need to be made centrally it will mean that you cannot weigh how it affects every individual business as heavily. You have to put the company ahead of each business. So you have to rethink the team.

CEOs must assess whether leadership team members can transition to meet new mandates or if they need to be replaced.

Sign 3: Stagnation or deterioration of individuals or the team

While changes in the business environment or a new mandate are hard to ignore, the third sign is more easily overlooked. In many organizations, individual team members—or the entire executive team—may stagnate in their development and gradually deteriorate in their performance. Some senior leaders stop developing and, therefore, over time will be more and more out of touch with the organization’s needs.

As one anonymous Fortune 500 CEO shared:

My CFO started well. Over the first two years, he accomplished a lot to put the company on a stronger financial footing. But he was really not interested in learning about our business, and after the initial results, he simply was not able to take the organization to the next level.

Similarly, leadership team performance may deteriorate when members become too comfortable with and stop challenging one another or when healthy competition devolves into politicking and backstabbing.

Take, for instance, the leadership team of a European multinational corporation we’ll call Frontal. The Frontal team had been working together for over 10 years, and the roles of every member in the organization had become very set.

As the CEO said in a conversation in confidence: “With every topic, I can almost foretell what each member is going to say. Everybody is trying to be nice, and no one wants to step on the others’ toes.”

When individual team members or the entire executive team begins to stagnate, it may be necessary to refresh the team by replacing at least some of its members to infuse new ideas and keep sufficient creative tension.

Taking Action

Upon recognizing these signs, CEOs must spur into action. They should approach the situation as if they were new to the organization. Does the executive team reflect the CEO’s goals, mandate, and vision for the future? Should the CEO clean house? Or should new sets of team roles and responsibilities be defined?

Although this process may be uncomfortable, regularly reassessing and refreshing the leadership team is one of the most effective routes to long-term success.

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Thomas Keil is a partner at The Next Advisors and a professor at the University of Zurich, Switzerland, where he teaches strategy and international management. His new book (co-authored with Marianna Zangrillo) is The Next Leadership Team: How to Select, Build, and Optimize Your Top Team. Learn more at thenextadvisors.ch.

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