Staging the Future: CEO Transitions


According to a recent report by the Stanford Graduate School of Business[1], organizations do not tend to have a strong succession planning process in place; not knowing who may be next in line to fill a senior executive’s shoes, nor a process by which to identify the characteristics of the leaders they envision for the future and the internal candidates that might be considered.   Companies tend to focus on reducing the risk of a CEO or senior executive transition and less on finding the best successors who are preparing to lead the organization into the future.

 

And yet one of the best planning processes an organization can have in place is a thoughtful approach to succession planning for the CEO as well as all key senior positions.   While the actual selection of the next CEO is the responsibility of the Board of Directors, the process of CEO succession planning should be a collaborative effort between the Board and the CEO.   And a wise CEO will also engage her board in succession planning for all key executive positions. Thoughtful development of a framework for succession planning will not only provide value to a critical transition in the future, but will engage the board and senior leadership in conversations which will further shape the performance and future of the organization.   Through increased clarity of purpose and direction, the succession planning process will enable the organization to respond well in times of transformative change. As is the case with so many key business frameworks, succession planning is not rocket science but it does require a great deal of thought and diligence.   Here are five basic steps in the process:

 

  • Start by creating a solid profile of the next CEO. In creating a CEO position profile, many elements should be considered, including the organization’s business model and long term strategy, challenges and opportunities that will be faced in the future, its culture, and the type of leader that is desired.   Since “leadership” can be defined broadly, it is important to detail what is meant by this term. Specifics might include communication style, directive or collaborative decision-making style, and approach to delegation and accountability.   Critical competencies or types of prior experience desired should be defined.   Beyond P&L experience and strategic planning, the profile might require the ability to build relationships with internal and external stakeholder groups.   Developing the next CEO profile should include significant input from the entire board of directors, the sitting CEO and the senior leadership team.   It is important that the Board not just receive draft profiles to review, but that all directors actively engage in the development of the profile. An objective and experienced third party may be hired to conduct specific interviews, in order to elicit unfiltered responses. Once compiled, this information will be refined and re-prioritized over the years as the needs of the organization change.

 

  • Look inside for potential candidates.   An internal search should be conducted from multiple perspectives.     The CEO, having worked with leaders throughout the organization, will have great observations on potential candidates, particularly once the CEO profile is developed. It is equally important for the Board to consider potential internal candidates.   If senior leaders have been exposed to the board, the Directors will have a better grasp on their skills and experience. However, the Board will not the same perspective as the CEO, and therefore both viewpoints are important.   It may be valuable to engage an outside party to assess internal candidates against the defined profile. From all three perspectives, information will be gathered that will help create development plans for top candidates.

 

  • Create development plans for the top internal candidates.   Based on the profile for the CEO successor and the input from the current CEO, the Board and external thought partners, a gap analysis on critical skills and competencies should be completed for each candidate. Resulting development plans should be incorporated as part of the overall performance appraisal and leadership development process. Expectations of these candidates should not be raised, especially if there is only one or even two internal candidates at this time.   Leadership development plans might include rotational tours of duty in a different business unit, a specific role assignment in an operational capacity or responsibility for a divisional P&L.   The incumbent CEO can purposefully delegate key responsibilities based on these developmental needs, as well as consider what other experiences may help the candidate step into the corner office. The organization may want to engage an executive coach to work with each candidate on the gap areas. If not already in place, internal succession candidates should be exposed to the board on a regular basis. The candidates might make presentations at board meetings, participate in strategic offsite meetings, or attend Board dinners. Board members might visit a candidate’s individual area of responsibility, with the CEO’s knowledge but not presence, or otherwise observe the candidate in action.

 

  • Look outside for potential candidates. When internal candidates are being considered, whether under a multi-year timeframe or a more immediate succession, it is a delicate balance to consider external candidates as well. If the board desires to consider internal and external candidates, it can be defined as the board’s responsibility to find the best overall candidate. There are some pragmatic issues in terms of timing.   If the CEO succession process is immediate, the board may conduct an external search concurrently with the evaluation of internal candidates.   It is critical that the board do so transparently and consistently, using the same CEO profile, evaluation process, and interview schedule for both internal and external candidates. The board should be clear that the external search in no way suggests dissatisfaction with internal candidates.   If the board is planning for a CEO succession still in the future, there are additional options.   Some companies evaluate external candidates and hire great potential in an apprentice-type role; perhaps a senior level assistant to the CEO in charge of special projects. This provides the time to evaluate skill sets, competencies and cultural fit. It’s important that any such hire be brought on to identify the right fit within the organization and NOT as the definitive successor to the CEO. If the board is interested in simply knowing what types of candidates may be out there for the future, a recruiting firm might be hired identify potential candidates without making specific contact.

 

  • Solidifying the succession planning framework. Once significant conversations at the board level and between the board and CEO have been held, a CEO leadership profile defined, and key internal (and potentially external) candidates and development plans identified, the heavy lifting is complete but the work is not done.   As with any critical business framework, it is important that CEO succession planning becomes a living breathing process. On an annual basis, the CEO profile should be reviewed and refined, and the process revisited.   On a twice-yearly basis, the incumbent CEO should provide development updates on identified candidates and note if there are new possibilities for consideration. Internal candidates should routinely be engaged with the board in meaningful ways which allow the board to consider their potential as the next leader for the company.

 

When done well, succession planning creates great strength within an organization beyond having a plan for when a transition needs to occur.   The development of any key business frameworks offers an opportunity for an organization to build its resilience and its ability to take on transformational change. Of note, the CEO succession planning process adapts easily to the creation of succession plans for all key executives.

 

 

[1] Daniel, L., & Scott, S. (2014). 2014 REPORT ON SENIOR EXECUTIVE SUCCESSION PLANNING AND TALENT DEVELOPMENT; Stanford Graduate School of Business.

 

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