1 Jul 2011
A lack of planning or a badly executed CEO succession can have an immediate negative impact on the company share price and its reputation.
As a result, there is no more important responsibility for any board of directors. Yet many directors devote only cursory attention to what should be a vitally important endeavour, delaying the succession-planning dialogue until pressure-filled circumstances necessitate a rushed or unplanned transition at the top.
Why do boards delay or overlook this process? Explanations abound, although none justify the failure to act. Directors may be somewhat intimidated by CEOs who hold management reins too tightly, or they may fear the complexity of the succession- planning process. In other cases, boards fail to appreciate the risks they will face, either when they find themselves ill-prepared for a necessary leadership transition or when forced to choose between limited options.
As a starting point it is important to put in place, the right strategic frame of reference, with the goal of developing the “true north” direction for the company’s succession process. Board discussions should focus on the company’s major sources of long-term growth and value creation, optimal timing for the next leadership transition and meaningful criteria with which to evaluate potential candidates and define future CEO success.
Effective succession planning also depends upon full alignment, early on, between the board, the current CEO, and the CHRO. Yet this is all too often overlooked, resulting in confusion, misdirection, and limited or poor choices.
While the board is ultimately responsible, the global head of HR is there to work closely with the chairman to keep the process moving forward. The role of HR is pivotal in the succession process and this includes ensuring the right leadership development process is in place to identify and grow multiple leaders with CEO potential, thus giving the board the best internal options to compare to potential external solutions before making a new appointment.
One reason that directors fear the complexity of succession planning is that they have little or no experience with it. Some directors struggle with how much autonomy to give the current CEO in setting the succession pace and developing the short list of future candidates. Other directors find it difficult to challenge the CEO’s thinking on the key success criteria of the next CEO, while some boards underutilise the chief human resources officer throughout the succession process.
We have found the most successful CEO transitions involve a few critical “non-negotiables” along with an open, transparent communication channel between the board and current CEO. In one recent case, the board self-identified its own performance to be one of the most important factors in its CEO success and took action to improve the way the full board and committees operated in parallel with executing a successful CEO transition.
CEO succession planning is not a simple, straightforward exercise. However, as with training for a marathon, with the right discipline and rigorous preparation, results will almost always be impressive.
Keith Meyer is Vice Chairman and Head of the Global CEO and Board Practice at international search firm CTPartners. He leads a global team focused on corporate governance issues and the performance of the board and CEO.