Baxter International’s CEO Crisis: The High-Stakes Game of CEO Selection

Baxter International, an American multinational healthcare organization headquartered in Deerfield, Illinois, primarily focuses on products and services to treat kidney disease and other chronic and acute medical conditions. On Monday, the board announced the abrupt retirement of President and CEO José Almeida. The word “abrupt” makes the story frightening.

Almeida also stepped down from the board, which he chaired, and the Board of Directors named independent director Brent Shafer interim CEO. The word “interim” makes the story scarier. The company disclosed that the board will consider potential candidates from within and outside the company as it searches for a full-time replacement.

If Almeda’s replacement isn’t obvious, it implies the organization hasn’t done enough to have someone ready as an emergency replacement. In my more than forty-year career, I’ve seen this in all industries. And it’s always bad news. The board can’t afford to get this decision wrong.

CEO selection, one of the most important and challenging responsibilities of a corporate board, requires more than guesswork and probabilities because replacing an ill-chosen or short-tenured CEO leads to losses of millions, if not billions, of dollars in shareholder value, organizational confidence, and momentum.

But interviews, resumés, and references don’t provide the vital information needed to make one of the most critical decisions boards have to get right. Boards need more than subjective opinions that can be both biased and wrong. Instead, directors require objective data and reliable feedback to help them choose the person who will have the most power in the organization.

When boards choose the right CEO candidate, they do the following:

? Protect the financial aspects of the business

? Establish the strategic direction for the organization

? Protect corporate culture

? Prevent the departure of key talent

? Avoid costly hiring mistakes—usually more than four times the CEO’s base salary.

? Build confidence among board members, employees, and other stakeholders that they have selected the best person to run the organization.

? Improve the alignment of the board of directors

? Build confidence in the industry and among key customers

? Make legally defensible hiring decisions—thereby reducing risk.

To achieve the above, the board will need comprehensive information about a candidate’s problem-solving and decision-making abilities, financial acumen, work-related personality characteristics, cultural fit, and leadership style. When organizations engage in this highly validated, reliable approach, they ensure fairness to all and take speculation out of the selection process with more than 95% accuracy.

In the best of circumstances, directors work diligently to anticipate the future, develop potential successor candidates over several years, and ultimately have one of them step into the top spot. But in emergencies like this, there is a great sense of uncertainty as to whether the board is selecting the best leader or just the best leader available right now. The obvious choice isn’t always the right choice, and wrong moves become expensive.