When a new CEO has been appointed that is only the first part of the succession process complete. The second stage is the all-important transition – the transfer of roles from the outgoing to the incoming CEO.
Poor handling of the transition by the board could see the planning and effort put into the succession process put at risk. It could contribute to the possible failure of the new CEO to effectively transition into the business and make it more difficult for them to deliver top performance. According to some estimates between a third to up to a half of all CEOs leave after 18 months, which is very costly for organisations, both in the short and long term. There is a higher probability of failure when the transition process is neglected.
A well thought through transition strategy, devised and implemented by the board, will help ensure the new CEO is effectively inducted and is enabled to add the maximum value at the earliest opportunity.
In an effective transition the organisation is well prepared for a new CEO. It ensures the new starter is in tune with both the power dynamics and the culture of the organisation. The CEO transition will deliver a path toward productive relationships between the CEO and key stakeholders—including, most crucially, board members.
The important question is – how can the broad deliver a smooth and effective transition?
Engagement between the incoming and outgoing CEO
With a planned CEO succession, such as a retirement, the outgoing CEO should help the incoming one adjust to and understand the business. This process needs to start ideally nine to 12 months before the planned transition date. The outgoing CEO should share knowledge with their successor about the business, board, important organisational relationships and the culture of the organisation. The new CEO also needs to be briefed by the departing CEO on the personalities of those on the board. This approach is particularly important if it’s an external CEO appointment, but must still take place even if it’s an internal hire.
Where working alongside each other as part of the transition process the departing CEO, and their successor, must have clearly defined roles from the outset to avoid confusion. Agreement is required on the details of their relationship; so questions need to be answered, including on what issues they will collaborate on? Do they want the board and the senior team to view them as true partners? Which decisions will the incumbent run by the successor? And importantly, what milestones or phases will mark their progress, and will the transition of power and responsibility be incremental or all at once? The boundaries between outgoing and incoming CEO need to be clearly defined during the transition process to avoid the distraction, confusion and ambiguity that lack of role clarity can cause.
The successor must have real responsibilities from the start, with objectives closely tied to strategic and operational success, and a clear timetable for transitioning to the top job.
The outgoing CEO, working closely with the board, must help direct the transition process. They need to remain fully engaged with their current duties and have responsibility for short term performance. They should also devote significant time to ensuring their eventual replacements’ early success.
360-degree clarity on the business
In the course of the transition process the board, along with the outgoing CEO, must ensure that the new leader has clarity on the role of the business, current strategy and future plans. Importantly, the new CEO must be clear on their role in taking the organisation forward, including desired outcomes. The incoming CEO needs clear performance indicators and clarity of expectations so they know what is expected of them and how they will be expected to steward the creation of value.
360-degree review of the CEO
It is important the CEO is assessed on these performance indicators at regular reviews by the board, to assess their effectiveness, identify development opportunities, provide support and ensure they are “fit for the future”. To ensure the CEO evaluation process delivers a vital 360-degree performance review, one that also provides an objective assessment, the board, chair and their direct reports must provide feedback on the CEO’s performance and development needs. This must involve quantitative and qualitative research based on interviews, and an online survey.
Induction / onboarding a new CEO
It’s still not uncommon for newly appointed CEOs and directors to be left with a box of reading material from the board, such as previous minutes from meetings, information on governance procedures, for example, and be expected to get on with the job in hand.
This leads to the induction and wider transition process taking a lot longer, or most likely ending in failure; potentially precipitating in the premature departure of the new CEO.
Boards must understand that the onboarding, or induction stage, is one of the most important parts of the transition process. With many boards still operating in crisis mode and virtually due to the pandemic, it’s vital that the new CEO is able make a meaningful contribution to board deliberations from the start of their tenure.
The best approach to take is via a formally structured “journey of learning” induction plan over 18-24 months. This needs to include a programme of visits and experiences across different parts of the organisation, a buddy system, and governance training. It’s the role of the chair, outgoing CEO and the wider board, to devise the induction plan for the new CEO and ensure its implementation.
Board to support the CEO at all times
There’s often a temptation for the board to step away and leave the new CEO alone as an expression of confidence in the new leader. However, this respectful gesture can have a negative impact on the transition process at what is a critical time in the life of the business. The majority of new CEOs will need support and advice from the board to help them quickly settle into their role, so they can add value at the earliest opportunity. At the same time the board shouldn’t micromanage – a balance is required.
New CEO must be proactive in transition process
While the board plays a critical role in the smooth transition of the new leader, the onus shouldn’t only be on it. The incoming CEO must be proactive in engaging quickly with the board and building and maintaining strong relationships with all the directors. With the most important relationship in the governance system being between the CEO and the chairman, it’s particularly key that the CEO and the chair quickly build a professional rapport. Then, at the appropriate time, the new CEO should engage with and start to build relationships with the organisation’s broader leadership group, key shareholders and stakeholders, to understand their perspectives and any concerns, including willingness to accept risk and change.
The premature departure of a CEO is often due, in a large part, to a lack of or limited transition process. What is needed at this crucial time is ongoing advice and support from the board and the departing CEO. The board must be proactive in investing time in planning and implementing a smooth effective transition – one that will help the new CEO to quickly add value. Failure to do so could lead to all the effort that they have put into the succession process – sourcing the new CEO – being wasted.
Integrity Governance works with boards, CEOs and chairs around the world. For almost 20 years we have delivered the best of local insight plus a global perspective to ensure that governance is effective. Those boards that need advice on planning for CEO succession, transition, reviews and onboarding should contact our highly experienced team.