How to plan for CEO succession
News stories on “The Great Resignation” have raised the profile of the ongoing and critical role of the board in succession planning. Effective boards plan for the succession of the CEO to ensure a smooth transition in the leadership of the organisation, with minimal disruption and business continuity.
Planning for CEO succession is time consuming and takes a lot of effort, and while the best made plans can sometimes fail, it’s always better to have one than to be caught without a plan, or a clear leader.
Boards should focus on CEO succession at least once a year. However, for many boards the default option is “go to market” and succession planning is not something they consider until time is not on their side, when the current CEO comes towards the planned end of their term, reaches retirement age or is no longer seen as the right person to lead the company.
It can take many months, possibly more than a year to source a suitable replacement, particularly if looking for someone external to the business. In the meantime, this could have a significant impact on the effectiveness of the organisation and board.
Having a succession plan is even more important where the departing CEO may have had unique skills, experience or connections with critical stakeholders which are vital to the organisation’s growth and future success.
Once boards start to create or revisit the CEO succession plan they need to consider four key factors:
- Clarity on the future role of the business: All organisations need to be clear on the future role and direction of their business. Is it about making as much money as possible, evolving into a social enterprise, or something else? Once there’s clarity on this from the board only then can the appropriate succession plan be formulated, along with a clear brief and CEO role description. From the outset of the recruitment process it’s imperative to be transparent with candidates about what the role entails. Commencing at the job specification and interview stage, through to the CEO’s appointment and beyond, role clarity is at the heart of a successful succession process and an effective board. If there is any ambiguity the CEO is set for failure.
- Consider what’s needed to bring the strategy to life: It’s forward thinking boards which recognise the importance of diversity on the board to help bring the strategy to life. A CEO with a different demographic background, experience, skills, thinking styles and circles of influence is often just what is needed to reinvigorate the strategy and help take the organisation to the next level. For example, if there is a lack of digital skills at a senior level it’s important to have someone on the board who has skills in this area, with digital disruption being a key driver of business success. Additionally, when recruiting a CEO, businesses should bear in mind the importance of a good mix of thinking styles on the board, particularly across the four lines of sight – oversight, hindsight, insight and foresight. This is crucial to deliver an effective board and ensure it provides maximum value.
- Set clear performance indicators for the CEO: The new CEO will need to know how they will be expected to steward the creation of value, and therefore what they will be evaluated on. Clear performance indicators must be confirmed prior to an appointment being made. Then regular reviews of the CEO are vital to assess their effectiveness, identify opportunities to develop and ensure they are “fit for the future”. These reviews should take place at least annually.A robust, objective review of CEO performance can clarify any performance issues, and provides powerful feedback to enable the personal development of the CEO.
- Onboarding: The onboarding, or induction stage, is the final step in the succession process. With many boards operating 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. This can only be achieved via a formally structured “journey of learning” induction plan over 18-24 months. This includes a programme of visits and experiences, a buddy system and training.
It’s only by recognising and implementing these four steps that boards will deliver a smooth and effective CEO succession process.
Those boards that need advice on planning for CEO succession, reviews, transition and onboarding should contact our highly experienced team.