What can Hong Kong learn from China's new leadership transition

The recent leadership changes in China are a good reminder for companies and boards of the need for carefully managed leadership succession planning and communication.

In early November 2012, Xi Jinping was named as the new Communist Party General Secretary, replacing Hu Jintao. As you would expect, it was a highly staged process, with information drip-fed to the press by the various factions.

Xi Jinping’s leadership style is markedly different from Hu Jintao. He is generally viewed as more affable than his predecessor.

His speeches at the 18th Congress were, not unexpectedly, long on style and short on substance. From the West’s perspective, he is an unknown quantity.

Apart from an awkward meeting with Obama in February he has had few other international appearances. Not much is known about his views of the world or his vision for China’s future.

Over the next six months, the West will be watching keenly to see how he handles relations with the U.S. and China’s ongoing territorial disputes with its neighbours.

On the home front, China’s netizens have been in overdrive. Xi Jinping’s message of improving educational opportunities for young people and resolving economic problems found welcoming audiences on Sina Weibo.

Other netizens were more skeptical about Xi’s optimistic messages, carefully commenting on the range of social issues affecting the Chinese population, particularly those related to freedom of internet access. For them, the jury on Xi Jinping is definitely still out.

So what can the private sector learn from this?
For any new CEO, reputation matters. When a succession is announced, investors are inevitably concerned about the new CEO’s track record, their relevant sector experience and leadership abilities.

Investors may vote with their feet if they don’t feel the new CEO has the right attributes to meet the company’s challenges. Sometimes they will give CEOs a six-month grace period, but they will use this time to closely track the new CEO for evidence of ability to successfully execute strategy and achieve tangible results.

Employees view a new CEO with similarly intense scrutiny. In addition to track record, they also assess the CEO’s ability to articulate a clear vision and strategy, manage expectations and develop internal talent. Leadership style and charisma are also important, particularly in organisations whose former leaders ruled by cult of personality.

Much has been talked about authentic leadership – leaders using their influence for personal and organizational leverage in a way that is authentic to them. But in a leadership change, the real risk in the transition period is that stakeholders’ positive expectations of the new CEO do not match their actual experience of that CEO – in other words, there is an authenticity gap.

A big gap, or a gap in a critical area, can negatively affect a company’s enterprise value. The extent of the impact often depends on how big the authenticity gap is – and what is being done to close it.

The best successions are where the groundwork has been carefully laid before the transition and measures taken to manage inherent risks after the transition.

Boards who are responsible for new CEO appointments must do the appropriate due diligence. Yahoo! found this out the hard way.

Communication about the new CEO should be carefully crafted and relevant stakeholders briefed. Word of mouth – either positive or negative - has a huge impact on a new CEO’s reputation.

Once appointed, the new CEO should quickly decide what communications themes and platforms they will own and how they will present their vision and execute on their 100-day plan. They will be judged by their stakeholders both on style and substance.

Most importantly, they should listen. Listening to their own “netizens” will allow them to assess whether they face an authenticity gap and need to take corrective action.

While most CEOs in the West are now aware of the need to build relationships with their stakeholders overseas, that hasn’t always been the case and many Western companies have underperformed or fared worse in Asia as a consequence.

Such relationship building is a new challenge for some CEOs in Asia, particularly those who are expanding beyond the Asian region for the first time. Many are reluctant, by Western standards, to fully engage with the public in new markets. This perpetuates accusations of lack of transparency and aloofness.

Even though these CEOs may be rock stars in their own country, they should consider themselves “new” CEOs in mature Western markets. It is critical they take the same care building their credentials and fashioning their “public face” as if they were starting out in the job.

The way they handle themselves, and their success at building rapport with stakeholders in these new markets, can really help – or hinder – their company’s growth progress. The bigger the CEO’s authenticity gap, the higher the probability the company will face acquisition and other license-to-operate hurdles.

Whether Xi Jinping has a public relations game-plan remains to be seen. But you can be sure that China’s people and the rest of the world will be forming a judgment on him by piecing together what they see and what they hear.

The impression they form of him over the next six months will influence how receptive they are to everything he subsequently says or does – whether they perceive him as an authentic leader or a party puppet.