The Board of Directors of every retail organization has one primary responsibility, picking the Chief Executive Officer of the Company. Now, they have other responsibilities which include insuring the integrity of the company, setting the salaries of the top people, agreeing to the strategy of the company, but their most important job is picking and retaining the CEO.
I have been observing boards over the last several years, and I can tell you that some of them seem to have not done the job the way I would like to see it done. So here are the 5 things that I have observed that seem to bring a poor CEO to a retailer. Stay away from these 5 things and you improve your chances of bringing the right leadership to your retail company.
1. Hire someone from outside your company. This is a huge mistake.
a. It gives the current executives of the company an immediate dismal review of their efforts. When you have a retail organization with hundreds, if not thousands of units, you would think a CEO could be developed from inside the company.
b. The new CEO has to spend time to learn the history and culture of the current company.
c. The new CEO wants to bring in friends from other places he/she has worked in the past. To me this says that he is not a teacher and that, without firsthand knowledge, thinks the current staff cannot get the job done. What type of message are you sending?
d. Your new leader should be with your company at least 5 years in leadership positions before being elevated to the CEO role.
Now I must say that there are exceptions to this rule. The best exception is the Pier 1 hiring of Alex Smith. He has done an exceptional job of leading this retailer back to success. Mr. Smith was, and is a merchant first and he has a passion and history in the category.
2. Hire a CEO with a Finance background. Perhaps this should be Number 1 in the list, but it surely is number 2. Retail is an industry of passion and finance is an industry of dispassion. While understanding the financial aspects of your company is a must, it can be taught and it can be hired. You simply cannot hire passion for the product and the customer. I think the downfall of one of our nation’s largest retailers is when they got into the credit card business. The profits from this enterprise were huge. What the board forgot was that unless product was sold there would be no profit. The financial tail was wagging the merchandise dog and the company began its long downward slide.
3. Hire someone for the CEO’s job that is not a merchant. I began my career in retail running stores. I loved and still loved all aspects of store operations. However, the true genius of retail is in the buying not the selling. The Chief Executive Officer, the heart and soul of the company, must come from the merchant ranks. If you want to be a CEO, go spend time as a merchant. Not a store ops person, not an attorney, not in finance, not in logistics but as a merchant. Not that all of those aren’t important, they are vital for the success of the company. But just as a nurse, dietitian, X-Ray technician, and anesthesiologist are important in a successful heart surgery, you really want the cardiologist running the team. The merchant will set the tone for the company. Look what happened to J.Crew when Mickey Drexler came on board. He is a merchant, in fact many have called him a modern day Merchant Prince. He is the soul of J. Crew, and a great hire.
4. Hire a CEO that is not outgoing and doesn’t want to visit the customer, the vendors, or the stores. I know that this sounds incredulous, but there are retail CEO’s that have been hired that simply only talk to the board and investors. The other three constituencies of a retail company (customers, employees and vendors) are totally ignored. I just don’t think customer interaction is one of the topics that is probed during the interview process. If you don’t love the customer, enjoy being with employees, and respect the vendors you simply cannot be a successful retail CEO. That does not mean that you cannot have a successful business career, it means that retail is not the place for you. When we opened one of our stores, not only was the CEO out front greeting consumers for 8 hours in a row, he had his wife were working the grand opening as well. The passion for the business is something that you just cannot fake.
5. Hire a CEO that is worried about his board. As I stated earlier, hiring a CEO that does not care about the employees, customers, or vendors is one of the 5 steps necessary to hire a CEO that will fail. The fifth and final step is to hire a CEO that will care more about pleasing the board than pleasing the other three constituencies. There should not be a fire drill every three months to make a presentation to the board. If leadership is working right, and the first job of a CEO is to be a leader, then pulling the information for a board presentation should be easy. If the board has put such fear into the CEO’s mind, then the board has made another misstep. The CEO should be worrying about the sales report, P&L, Cash Flow, data security, company integrity, the future threats to the business, personnel growth, anything but whether or not the board is happy with the font of the presentation. Don’t worry about the stock price either. If sales and profits are right, the stock price will follow.
Retail and Restaurants are a special place to work. No other business categories have closer ties to their consumers than retailers and restaurants. Picking the right CEO with the right leadership capabilities is vital. As George Santayana said “those that cannot learn from history are doomed to repeat it.”
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Rich Hollander is a retail expert with over 40 years in the industry.