Sonita Lontoh quoted by Fortune for Diligent’s Modern Board on CEO Successions and Culture Fit

Why Cultural Fit is a Critical Consideration for your Next CEO Hire

By Matt O'Grady
September 25, 2024

For nearly eight years, Mark Schneider led top European consumer goods giant Nestlé, earning a reputation as a standout CEO for selling slow-moving businesses (in insurance and confectionaries); strengthening Nestlé’s presence in nutrition, pet care, coffee, and water; and securing smart strategic alliances with the likes of Starbucks.

So it was shocking news that Nestlé’s board dumped Schneider in late August. While the company’s stock price had been flagging in recent years, a Wall Street Journal story indicated a more fundamental concern: Several directors and senior leaders at the Swiss company questioned whether the CEO “was still a good fit for Nestlé’s deeply rooted culture.” The German-born Schneider had been the first outsider to run Nestlé since 1922.

The issue of cultural fit in hiring—and firing—CEOs has taken on outsized importance in recent years. “COVID was a pivotal moment for boards and management teams in understanding how leaders lead during crises,” says Tierney Remick, vice-chairman and co-leader of Korn Ferry's Global Board and CEO Practice. Companies experienced almost a decade of growth pre-pandemic, she notes, but growth “hides” a lot of cultural weakness. In the case of Nestlé, chairman Paul Bulcke reportedly heard from senior employees that, “Schneider had trouble connecting with many of Nestlé’s customers during market visits.”

Testing for cultural fit has become a critical part of Remick’s practice. “One of the reasons we do assessments is to really get at what drives a candidate. What are their motivators? How do they create an environment of healthy and constructive debate, so they can get the best ideas on the table? When you hear about leaders who failed, oftentimes those elements weren’t considered as equal to experience.”

Taking a holistic view

In any CEO succession planning process, cultural fit has to be considered in a holistic way, according to Sonita Lontoh, an independent board director at Sunrun and TrueBlue and commissioner of the NACD Blue Ribbon Commission on board culture.

“Boards need to determine their CEO imperatives, which should be aligned with a company’s strategy over the next five to 10 years,” says Lontoh. In addition to culture, she points to imperatives such as vision, business and financial acumen, and stakeholder and shareholder engagement. “They then need to evaluate a candidate’s career, capacity, capability, and character against these imperatives. Cultural fit cannot be evaluated in a silo.”

Some argue that an insider candidate has certain advantages over an outsider in terms of cultural fit. But as Lontoh sees it, the ideal candidate brings a bit of both to the table—pointing to the concept of the “insider-outsider CEO” made popular by Harvard professor Joseph Bower, which describes someone who once worked for the company, or perhaps was CEO of a subsidiary, but also maintains “an outsider mindset.”

But no CEO—insider, outsider, or insider-outsider—can be successful over the long term without fully understanding a company's culture and capabilities, says Lontoh. “Cultural fit is essential to getting things done and leading transformations that succeed.”

 Originally published for the Fortune’s Modern Board newsletter for Diligent.