When should you replace the CEO of your US subsidiary?


When should you replace the CEO of your US subsidiary?

DSML Executive Search is often selected by European and Canadian owned companies to conduct C-Level “replacement searches” for their US Subsidiaries.  Quite often a new executive search is initiated because a senior executive has left to pursue another opportunity, however a new search can also be launched when the board, or the parent company, recognizes that they need new management in the US subsidiary.

It is always interesting, when conducting a senior level executive search, to observe the rate of transition noted on the senior executive candidate’s resume.  Recruiters always use the “turnover rate” as a gauge of career stability.  Occasionally, we will see resumes that show a significant amount of “hopping” (by significant we mean more than once or twice every 12 to 16 months).  From our experience, DSML usually “passes” on these candidates as clearly there is either a cultural misfit or the candidate feels that the lure of higher compensation is more important than the commitment that he/she made.  We believe in the integrity of the process and want to present the most qualified candidate.  Therefore, we simply cannot introduce a candidate to our clients when clearly the possibility is, as evidenced, that the individual will likely not be around for a long time.

So, what is a reasonable length of time for a CEO to stay on board before moving to a new opportunity? Our experience shows us that a tenure of four to seven years is usually the norm.  (There are some variances by industry though as a CEO in an industrial/manufacturing plant appears to stay on board for a longer tenure than an executive in the life sciences industry, that changes at a much quicker rate than other sectors due to new joint ventures, and aggressive industry demands, for example.)

According to Manfred Kets de Vries, Professor of Leadership Development and Organizational Change, INSEAD, “A CEO should stay in his/her job for seven years, plus or minus two.  Seven years is probably the period of maximum effectiveness for most people in what can be a very stressful job.”  He says, in the Harvard Business Review, that there are three distinct phases, “Entry – the period in which a CEO is prepared to take risks and make major changes, especially if brought in as an outsider; Consolidation – assuming all has gone well, the CEO will have built alliances with key stakeholders and top executives are committed to the course chosen; Decline – a period when the job has become routine and performance is slipping … there is no new blood coming into the top ranks and the CEO has stopped listening to other people’s ideas.”

Firing a senior executive is a tough decision, unpleasant to perform, and one of the most procrastinated tasks in business.

It’s pure agony, and I usually postpone it and suck my thumb and do all kinds of other things before I finally carry it out.”  Warren Buffet.

A senior level dismissal can also be complex when the parent company is located in Europe or Canada and the CEO is managing the US subsidiary.

In addition, replacing a C-Level Executive is time-consuming, disruptive, and potentially expensive.  For this reason, DSML Executive Search recommends that our European and Canadian clients adopt a strategic approach for hiring C-Level Executives for their US Subsidiaries.

Hiring is the most important decision a company can make, no matter what industry one is in.  Consider engaging with an Executive Search firm that has a well-defined process in place.

If your company is seeking to recruit for a key position, such as CEO, COO, President, VP or other Senior level role, have a conversation with DSML Executive Search  to ensure your search includes a “thorough” process and a “success based” strategy.