Case Study: Are the Right People in the Right Seats?

Shannon Levy, the new CEO of Highstreet Properties, stared out the window of the company’s London headquarters, wondering whether she should call Justin Mooney and fire him. A once-thriving developer of retail malls, Highstreet had been battered by consumers’ shift to e-commerce, Covid-19 mall closures, and internal discord over strategy. Shannon had been brought in to turn the business around. She was fast approaching her 100-day mark and already feeling behind on selecting, aligning, and motivating her senior leadership team.

This evening she was focused on Justin, who led the company’s portfolio of premium outlet malls in 26 countries. He had joined Highstreet straight out of college and firmly believed that because real estate markets had always been cyclical, in-store shopping would regain strength. He recognized that online was a fast-growing channel but constantly reminded his colleagues that it still accounted for only a quarter of global retail buying. He remained convinced that physical retailers had viable paths to growth. “We’ve seen cycles like this before,” he’d lectured Highstreet’s top executives recently. “The key is not to panic but to stay consistent and steady.”

Shannon had just opened an email from Justin saying that he had to miss the team strategy offsite scheduled for the next day. He was meeting with a major retailer that was considering ending its lease in several dozen Highstreet locations — a threat requiring his immediate attention. She saw this as yet another sign of his reluctance to embrace her leadership — which, she felt, had started to percolate through the company. She’d been hired to pull Highstreet into the 21st century and had outlined a plan to quickly close underperforming malls; pursue new clients that offered more-compelling retail experiences; and develop digitally advanced customer value propositions. She wanted the team to meet in person to align on the strategy before presenting it to the board later that month. But Justin had resisted her ideas at every turn.

Complicating matters was the fact that among all the division leaders, Justin had the strongest results. Although revenues in his unit had declined by 9% over the past three years, it was still the most profitable one in the company, making a 10% net profit when revenues overall had declined by 15% and the company was showing a net loss of 5%. Shannon had toured some of the open-air malls that Justin had aggressively marketed as providing safer, more enjoyable shopping. His operational knowledge was sound, his client relationships were deep, his team’s loyalty was unshakable, and he was friendly with several board members.

Shannon’s finger hovered over her phone as she contemplated sacking Justin for his latest act of insubordination. It would send a clear signal to the organization that she was in charge and moving full steam ahead with the new strategy. But that risked alienating key directors and destabilizing her strongest division.

She had long subscribed to Jim Collins’s philosophy that getting the right people on the bus was essential to any leader’s turnaround efforts.(1) In addition to Justin, more than two-thirds of her top team members probably didn’t deserve seats at Highstreet. But how many of them should she change out? And what pace was prudent?

Fix It, Don’t Break It

Founded in London after World War II, Highstreet had ridden the wave of Europe’s reconstruction to become one of the region’s dominant retail real-estate players, growing through strategic mergers and acquisitions that broadened its service offerings and geographic reach. The company’s culture rewarded deep industry knowledge, local market expertise, and a commitment to client-centric solutions.

The onset of the 21st century had brought disruption, however. As online shopping became more popular, sales at Highstreet’s urban malls began to flag. Several anchor tenants filed for bankruptcy. The company responded by expanding its network of destination outlet malls featuring off-price luxury-brand items that weren’t available online, creating a “treasure hunt” experience that appealed to shoppers—and a competitive moat against the threat of e-commerce.(2) However, the global pandemic had devastated all of Highstreet’s divisions, and analysts worried that physical retail might never fully recover. The company now faced higher vacancy rates and suffered from a bloated cost structure. With declining revenues and two years of net losses, its stock was 50% below its 2019 peak. The board had pushed the longtime CEO into retirement and recruited Shannon to orchestrate a rebound.

A graduate of Oxford and Wharton, she had begun her career at a boutique real-estate investment firm, where her financial acumen and work ethic quickly distinguished her as a star performer. After a decade she transitioned to a commercial real-estate firm and swiftly rose through the ranks. She burnished her reputation by nurturing client relationships and leading a digital transformation that gave her employer an advantage in using data and technology to manage its properties and client services.

Shannon had been a nontraditional choice for Highstreet, however. All its previous CEOs had been long-tenured “lifers” at the company.(3) But the executive recruiting firm had suggested that her fresh perspective, leadership style focused on collective problem-solving and transparency, and track record for moving swiftly but in close consultation with her team made her a solid pick. When the board had offered her the job, its chair, Bill Fife, had expressed confidence in her. “Shannon is the best person to fix Highstreet without breaking it,” he’d said.

As she settled into the role, she encountered an overcomplicated matrix structure,(4) resulting in what she saw as redundancy and less accountability than she’d like. The structure had created silos, and a reverence for “tradition” made the firm resistant to change.

Whom to Fire, Hire, or Retain?

Shannon had inherited a seasoned executive team at Highstreet. Her 10 direct reports(5) were the chief financial, technology, and human resources officers; three geographic heads overseeing the United Kingdom, continental Europe, and the rest of the world; and the leaders of four divisions: urban malls, premium outlets, leasing management, and construction and development.

The board had assured her that she would have license to revamp this group, and within weeks of arriving at Highstreet, she knew she wanted to replace the CFO — who had lost the trust of investors and analysts after several consecutive earnings misses — with an experienced former colleague of hers. But to give herself time to develop a comprehensive restructuring plan and better understand the long-term suitability of other top team members, she had so far kept that decision to herself.

She knew she had to handle changes with care. Removing any leader would disrupt that person’s team and customers, and hiring and onboarding a replacement could result in slowing down the initiatives she wanted to move on quickly.

Justin certainly felt like an impediment to the transformation she hoped to drive. But she hadn’t been able to identify an internal or external candidate who could easily step into his role, and losing his institutional knowledge and client relationships would be costly. She had often felt on the brink of firing him but hesitated.

She held a similarly negative view of Jane Nasser, head of the leasing division, which served mall owners that outsourced day-to-day operations to Highstreet. Although asset-light, the unit had seen revenues and profits drop steeply. And Shannon sensed that Jane was closely allied with Justin — they had gone to college together and always sat next to each other in meetings. At the most recent meeting Jane had echoed Justin’s determination to stay the course. “Our mall clients are still suffering from a post-Covid hangover, but they’re bringing in new tenants, the department stores are rolling out new turnaround plans, and I expect to see better results in a few quarters,” she’d said. Shannon had a replacement in mind: a strong leasing expert she had previously worked with and deeply trusted. But since she was already planning to replace the CFO with a former colleague, she wondered if she would be perceived as stacking the team with her own people.

Shannon’s third quandary involved Chris Wang, the leader of the global group, which focused on major South American and Asian cities with historical links to European ones. He had less than a decade of experience at Highstreet, but he had clearly demonstrated both a keen eye for untapped opportunities and the agility to capitalize on them. For example, to lure shoppers back to malls, his team had embraced experiential retail, including boutique fitness studios, Topgolf, arcade bars, and wellness clinics.(6) “Our malls should be a destination for people even when they don’t intend to walk away with a shopping bag,” he’d said.

Shannon viewed Chris as an ally in spearheading innovation and growth. But he’d called the previous day to say he’d been offered a leadership role with a competitor. He hadn’t intended to leave Highstreet, but its recent poor financial performance meant that his stock options were underwater. The competitor had offered him nearly double his current pay. Shannon wanted to make a counteroffer, but she worried how the rest of the team would react.(7)

Case Study Classroom Notes

(1) Collins calls this approach “First Who, Then What.” Do you agree that putting the right team in place takes priority over executing the new strategy?

(2) Outlet malls have performed well since the pandemic because many are open-air, consumers prefer the discounted prices during times of inflation and uncertainty, and retailers save on warehouse space by shifting excess inventory to outlet stores.

(3) Just under 20% of top officers at Fortune 100 companies are “lifers,” down from 40% in the 1980s. What advantages and disadvantages do lifers offer when leading companies?

(4) Writing almost 50 years ago in HBR, Stanley Davis and Paul Lawrence described matrixed organizations as “a formless state of confusion where people do not recognize a ‘boss’ to whom they feel responsible.”

(5) A 2012 study found that CEOs have an average of 10 direct reports. What do you think should determine the size of the top team, and how large or small might be optimal?

(6) The industry has begun using the term “retail-tainment,” referring to a variety of methods and techniques that provide customers with a unique experience and put them in a mood to buy.

(7) Do you believe counteroffers make sense? When should they be used — and what are the drawbacks?

A Whirlwind of Thoughts

Shannon had succeeded in the past by trusting her gut and being decisive. However, David Cohn, the recruiter who’d helped Highstreet select her, suggested that she might benefit from a formal review of the entire leadership group before making any moves. Even if she chose to shake up the team after that evaluation, it would show that her choices had been measured and would serve as a buffer against criticism.

The process would include benchmarking her direct reports against internal and external candidates for the roles and identifying succession targets as needed. She could also hire coaches to work with high-performing but change-averse executives like Justin, giving them one last chance to get on board. She had asked David for a proposal but worried about the time his plan would take — and about developing a reputation for needing consultants to help her make tough calls.

Shannon also wondered if the company’s structure could be simplified. The current matrix of geographic and business heads created complexity and diffuse responsibility. On a yellow pad she sketched out a new org chart, eliminating the regional structure entirely and organizing the company under global business- line heads. That would reduce costs and the size of her team. But again, it would take time — and even so might be too much change too quickly.

She knew she should reach out to Bill, the board chair. Having repeatedly heard his mantra to “fix it without breaking it,” Shannon suspected that he would again advise her to have heart-to-heart conversations with Justin and Jane to get them aligned. But she doubted that would be enough. The board had recruited her: Surely the directors would support her if she was firm that these changes were necessary.

In this whirlwind of thoughts, Shannon circled back to the core of her leadership philosophy: Get the right people in the right seats. A simple and powerful dictum — but what was the best way to achieve that outcome quickly?

The Experts Respond: How aggressively should Shannon remake her top team?

Michelle MacKay is the CEO of Cushman & Wakefield.

For any CEO, it’s critical to be able to identify, recruit, manage, and retain talented people. Whom you have on your team is a strategic decision. It’s not easy. Shannon needs to work deliberately and decisively using an approach I call slow, slow, fast. She should diligently set the framing for her decisions (slow), methodically analyze the information about the talent of her team (slow), and then quickly commit to decisions about the people and their ability to be part of the new strategic plan (fast).

Before Shannon begins, she needs to map out a holistic plan of action — a talent strategy plan. That’s the framing, which will provide part of the slow. That plan will enable her to connect the dots between her corporate strategy and her talent strategy. It will outline the tactics that are necessary to execute her talent plan. In the end, it will give her a road map to follow in making firm decisions, and she will be able to use it both to inform the board and to get the directors to sign on before she begins the process.

In some cases she already has enough information and can immediately move to a fast decision. In other cases, she needs to collect more information and go through the critical but slow part of the process.

Let’s get to the fast first. Shannon should remove Jane Nasser immediately. Nasser’s division is underperforming, and Shannon has a trusted replacement lined up. Being able to recruit known talent is a huge positive for a CEO. Simultaneously, she should retain Chris Wang and not worry about the economics. Retaining Chris will signal that Shannon values people who will push her strategy forward.

Now for the slow. Shannon needs more time and information before deciding on Justin. Common practice in this scenario would be to fire Justin for insubordination — to move fast — but let’s flip the script. If she’s able to convert a leader from the “old guard” to support her vision, she will have a big win and send a powerful message to the organization. Sit him down, be transparent, give him three months, get him a coach and a plan. Manage the talent. In the meantime, search for an A+ replacement in the event that Justin doesn’t work out.

Finally, Shannon should hire David Cohn to evaluate the broader team. His firm can also provide coaching to any team members who need to get aligned with the new strategy. It’s important to not make decisions in isolation, to leverage external expertise where you can, and to keep the ball moving. Enrolling Cohn will also give Shannon an objective view, and with his slow work, she will be able to move fast on the rest of the team.

With this approach, Shannon can create clarity in a complex situation — recognizing that how you manage talent is a strategy, and that if you can combine the old guard with the new, you’ve got a better shot at taking your team on the journey together.

Jeff Jones is the president and CEO of H&R Block.

The board’s instruction to Shannon — “Fix it without breaking it” — makes for a good sound bite, but Shannon needs a clearer sense of what the directors would consider “breaking it.” Ideally that would have been clarified during the selection process, but since it wasn’t, she should revisit this issue with the board quickly. If she ends up replacing a lot of her top team, will the board think she’s exceeded her mandate?

Aside from that lack of clarity, I’m concerned by how reactive Shannon is being as a new leader. She hasn’t clearly established her expectations and the strategy she has in mind, which makes it difficult to evaluate people against her vision of the future. She seems overly focused on how colleagues are treating her, and too worried about what members of her team may think about decisions she makes. I’d like to see her leading with more intentionality.

I understand why she wants to replace Jane Nasser with a trusted former colleague. But she should be cautious about bringing in people from her previous company. When new CEOs “get the band back together,” it signals that they don’t have confidence in people they don’t know or that they don’t think highly of the organization’s existing talent. People below the top team may draw conclusions from that. Over-relying on former colleagues is a cheap play in the chief executive’s playbook. Great leaders need to be able to get results from people they haven’t worked with previously.

Shannon should consider dealing with Justin by adjusting his responsibilities so that he’s in charge of driving day-to-day performance (which he does well) while a different part of the team works to create tomorrow’s business model. This “team of teams” approach can make sense. Some people aren’t as skilled as others at inventing the future, but they excel at operating the existing business — and a top team needs both types. When it has them, the CEO isn’t forcing people to do work they’re not suited for. Shannon should present this candidly to Justin: She’s asking him to continue doing what he does best.

She should try to keep Chris Wang, but there’s a limit to how far she should go. I’d suggest she talk to him and try to assess how open he is to a counteroffer, or whether it’s too late. I wouldn’t get into a bidding war to try to keep him.

A new leader who’s been brought in to drive a transformation will need many, many months to get the right executive team in place. The team will evolve in accordance with the strategy. It’s a mistake to think that reformulating the team quickly is the top priority. Remember, a CEO has been hired to achieve an outcome, and that’s what Shannon is going to be judged on — not whom she keeps on her team.

Jim Collins did talk about getting the right people on the bus, but in his study of great CEOs, he found that half of them tended to replace subordinates and half focused on developing the team they had inherited. There is no “right” way.

I see in Shannon’s situation a reminder of how important it is for chief executives who are joining an organization from outside to get alignment with the board. You want to interrogate directors and deeply understand what they’re asking you to do before you say yes to the role.

HBR’s fictionalized case studies present problems faced by leaders in real companies and offer solutions from experts. This one is based on the HBS Case Study “The Executive Team at Williams Properties: Putting the Right People in the Right Seats” (case no. 424-041), by Nitin Nohria.

Copyright 2024 Harvard Business School Publishing Corporation. Distributed by The New York Times Syndicate.

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