Following heightened scrutiny from corporate governance firms such as RiskMetrics and Glass Lewis, Australian companies face increased pressure to ensure their leadership teams consist of the best and most appropriately skilled talent to take the business forward in the new financial year and beyond. As CEO contracts come up for renewal, Australian Boards are quickly learning the risk implications of failing to undertake due diligence when selecting and evaluating the success of their leaders.

With the recent resignation of Allied Brands CEO Shane Rodbone following a strategic review, and the recent departure of David Jones' CEO, Boards are facing increasing pressure to apply stricter controls on their selection and performance with risk mitigation considered top priority. Seven, Rio Tinto, APN, Austar, Aspen and Boart Longyear have also all been challenged over performance and/or corporate decisions in recent times as demands for shareholder returns increase following the GFC.

Chandler Macleod Group (CMG) has seen a marked increase (30%) in businesses seeking its expertise in the selection and evaluation of existing and prospective CEOs over the past three months as a result of this trend. According to David Reynolds, CMG's executive general manager for consulting (pictured), public company Boards and their CEOs are now faced with new challenges around accountability and performance and the need to optimise growth.

"A number of Boards and CEOs struggled during the GFC, with many caught unprepared and without clear leadership direction to face the tough and demanding environment. Now that market conditions have improved, there are new pressures as stakeholders expect businesses to gain performance traction in the upturn," Reynolds said.

"The average tenure of an Australian CEO is around three years but this is largely influenced by changes in major shareholders and economic circumstances so we can expect to see quite a bit of turnover in the next financial year as interested parties place more pressure on organisations to perform. This is clear from the number of businesses contacting us to ensure they have undertaken due diligence in assessing the capabilities of their current CEOs or potentially sourcing and appointing others more suited to take their business forward," he added.

Reynolds said that Boards should be planning at least a year in advance of any CEO contract reviews so that all necessary due diligence and objective evaluation processes can been carried out well before the contract expiry or renewal date. This follows increasing calls from shareholders and corporate governance stakeholders for businesses to implement rigorous selection and performance evaluation measures to ensure a robust system exists for ongoing performance evaluation and to meet the future needs of the organisation.

Business simulations, structured interviews and psychometric testing are being used to provide an objective and holistic overview of a CEO and allow Boards to effectively set organisational goals.

However, there are also advantages for CEOs as evaluation is shown to strengthen links between performance and rewards with accurate goal setting. Successful evaluation also improves Board-CEO relations and their effectiveness to meet shareholder demands.

"The businesses that fared best during the GFC were those that had already developed comprehensive CEO evaluation processes - these are the companies that have been able to grow and thrive while others faltered," Reynolds said.

Some of the more successful businesses include SuperCheap Auto, Domino's Pizza, Wesfarmers, BHP, ANZ and Westpac.

According to Reynolds, CEOs that fared best during the downturn were those that likely had exposure to difficult times in the past and those who were effective communicators with their stakeholders.

"By balancing longer term needs with short-term crises, maintaining key talent and focusing on core business activities, successful CEOs positioned their organisations to bounce back quicker from the downturn and are now reaping the rewards with increased talent attraction, retention and market share."

CMG has identified the following key traits of a successful CEO:

• External focus and long-term view
• Expert ability to maximise shareholder value through sound strategic and business acumen
• Display high energy levels, the desire to take charge and persuasion skills
• Take a genuine interest in the company and its people - display interpersonal skills, patience, listening capabilities, delegation qualities and support the consensus view
• Utmost integrity, instinct, judgment, and occasional courage and toughness