BP has changed three CEOs and three chairmen in less than three years. The latest shock came this spring, when the company's board abruptly fired its chairman just weeks after the new CEO took over, citing serious concerns about governance, oversight and conduct. The outgoing chairman denies that explanation, saying he was fired without warning and disputes characterizations of his work style. One activist investor was even more blunt, calling the company's nomination process “dysfunctional.”
It's tempting to turn in all of this due to bad employment or bad luck. A more useful lens is one to which the board rarely applies. This is a transition problem, and transition problems are organizational, not personal.
Let's start with what decades of research consistently show. Approximately 40 percent of executives are forced out, fail, or quit within 18 months of starting a senior role. When you ask why, incompetence is rarely the answer. Incompetence accounts for approximately 1 in 10 failures and ranks near the bottom of the list. These are the people who have passed a thorough search. The ousted BP chairman spent a decade running the large listed company, trying to restructure its portfolio and reward shareholders. Whatever went wrong didn't mean he couldn't do demanding executive work.
What really drives senior leaders crazy centers around three areas that are typically outside the scope of resume screening: culture, people, and politics. This is the uncomfortable part for the board. These three are largely invisible during recruitment, but that's exactly where stage boards put their energy.
Think about how your money is spent. According to one industry estimate, approximately 90% of executive recruitment costs are spent on the front end: search firms, evaluations, and interviews. Once a leader arrives, barely 10 percent, sometimes nothing, is spent on making that leader successful. BP, like most large companies, conducted a rigorous worldwide search for its chairman. However, rigor in selection and support in transition are not the same, and the two are routinely confused. Even if you choose perfectly, you can fail someone by handing them a laptop, a calendar, and a fortune.
The risk is multiplied when the leader is an outsider to the sector. Moving talented executives from one industry to another, in this case materials to energy, is one of the most difficult types of transitions. Most often, what breaks the transition is not ability, but the ability to read the culture in which you were not raised and time your transition to it. Before you earn your rights and the organization rejects you like a misfit transplant, ask for change. If you act too cautiously, you will fail to achieve the purpose for which you were hired. The BP Board noted oversight and conduct concerns. The former chairman has positioned his approach as driving change with urgency. I'm not going to judge that controversy. Note, however, that the distance between “urgency” and organizational rejection is exactly the distance that structured transitions should manage, and it rarely does.
Now let's stack up the cost of doing this repeatedly. Each leadership move directly impacts, on average, about 12 other leaders. Direct reports of struggling incoming leaders tend to underperform their peers by about 15%. And every public failure of a leadership transition causes organizational anxiety and a “momentum freeze.” This is when good initiatives quietly stagnate as everyone waits to see what the new leader wants before committing to anything. Companies that have had their third chairman and third CEO in three years are not just absorbing three transition costs. The company teaches its people and markets to prepare, not build.
BP investors are openly divided over what this means, and clearly both sides could be right. One current major shareholder warns against overlooking the forest for the trees, arguing that strategy and asset base are more important than any personnel changes. Some activists counter that the constant turnover on the board casts serious doubt on the board's ability to choose and challenge its own leadership. While the strategy is sound, it is also possible to defeat the transition mechanism. These are not competing claims. They are two diagnoses for two different problems.
This requires boards and investors to scrutinize the process, not just the picks. Investors have long acknowledged that “leadership quality” is the least confident piece of information they measure. And the investigation is unrelenting about the costs of choosing the wrong successor, with unplanned succession leading to huge destruction of shareholder value. Boards of directors that have run so many companies owe more to their owners than just another name. We have an obligation not just to fill a seat, but to provide a credible explanation of how we will transition leadership into that seat.
This fix is nothing special. Treat the chairman and CEO transition as a managed process, the way the best organizations already do it. This includes a full-fledged pre-boarding phase, structured onboarding, dedicated transition support, and a written handoff that extends beyond the lifetime of the individual. Ask yourself this question before your next appointment. Have we invited this person to read our culture, sequence our national decisions, and map our politics? Or have we simply admired their qualifications and wished them well?
BP's former chief executive recently set clear hurdles: leadership must be top-notch and, above all, stable. He's right. But stability at the top is not a employable personality trait. It's the result of your engineering. And now that engineering is missing.
