"The CEO can serve as a catalyst for encouraging the board to begin thinking about succession earlier than they otherwise might and, certainly, long before a transition is anticipated." Spencer Stuart
The CEO needs to ensure that the organization is developing succession-ready executives for all senior roles. A CEO should drive management succession planning at top levels. This includes the early identification of any inside CEO contenders and providing counsel to the board on CEO succession.
In practice, however, many CEOs have questions about how and when to be involved in that process:
- In which activities should I take the lead?
- When should I step back from the process?
- What does the board expect from me, and what do directors think would better prepare them to select the next CEO?
Here is guidance for CEOs on when and how they should be involved.
Be proactive: Make sure planning begins well before you anticipate leaving
Directors know that CEO succession planning is their responsibility, but that does not mean that they always find it easy to broach the topic. Boards can be especially reluctant when a robust and high-performing CEO is in place, and a transition seems far off.
When should succession planning begin?
Progressive organizations start the process when the new CEO starts in the role. Starting early and creating a good cadence around executive development and long-term C-suite succession planning increase the chances that multiple strong internal candidates will be identified, assessed, given specific development opportunities and be ready when a transition is near. Our ladder of leadership is an excellent tool for succession planning and the development of the organizations' future leaders.
Wait too long, and there may not be enough time to address the developmental needs of candidates with potential. Starting early also allows directors to have more interactions with potential candidates over time, so they can observe patterns of performance and behaviour and gain more profound insights into candidates’ succession-readiness. It also removes any "conspiracy theories" that the board is looking to replace the CEO.
Finally, when C-suite succession is an established process, it can reduce the chances that succession planning will culminate in an intense and potentially disruptive horse race or the need for a CEO search.
Also, to emphasizing its commitment to management development and providing internal options for the board to consider on a long-term basis, CEOs also should encourage the board to plan for emergency succession needs.
Support a best-in-class talent development process
Boards want to know more about the superior talent coming up through the organization than what they learn during regular board meetings or dinners. The CEO is in the best position to make sure directors have the insight they need by working closely with the chief human resources officer (CHRO) to ensure the company has a robust, forward-looking approach to executive talent development.
The foundation for CEO succession planning is the strategic direction of the business, from which the profile and selection criteria for the future leader can be developed. In a well-performing company, the CEO is heavily involved in this part of the process. Getting the profile right is critical because the CEO criteria provide a roadmap for internal candidate development plans and a framework for selecting from among finalist candidates.
In a best-case scenario, the board and management team engage in a due diligence process that forges agreement about the strategic direction of the business and the company culture, from which the profile for the future CEO is derived. Following the approval of the annual business plan, the CEO should lead a discussion about the forward-looking leadership requirements for the company and specific executive roles based on the strategic direction. If the program changes mid-year, the succession plan needs to be revisited too. They should also update the CEO criteria as appropriate in response to the evolving circumstances and conduct a deep dive to evaluate talent against that leadership framework.
The CEO in concert with the CHRO should create development plans for potential internal candidates with a forward-looking lens, assessing individuals based on the future requirements of the business and translating those requirements into specific developmental needs. The CEO should keep the board informed about moves meant to accelerate candidates’ succession-readiness, for example, assignments providing specific operational experience or exposure to external stakeholders. The CEO and board can benefit from bringing in outside assessment expertise when evaluating how the internal team stacks up against the requirements and external benchmarks, and it is particularly helpful when the business may require a change in strategic direction.
Recognize when it is time to step back from the process
The CEO is a vital player in CEO succession planning, both in an of-counsel role to the board or the committee responsible for the operation and in overseeing the company’s overall management succession, said the recruiter. As the time for a transition nears, and the process turns toward the board’s selection of finalist candidates and, potentially, an external search, the CEO’s participation diminishes, CEO succession planning can be very challenging, personally and professionally, for sitting CEOs. The use of our talent analytics powered by SuccessFinder to predicts the success of potential candidates is invaluable to the directors in the selection process. The board must drive the process, not the CEO.
Even for CEOs who have actively groomed potential successors, they ultimately must take a back seat as the board moves toward selecting a successor. CEOs cannot assume their role is going to be the same when a transition is near, and they should not take it personally when the board expects greater control or has different ideas about the process, the candidates or the timing of the transition. Advocates by nature, CEOs need to remind themselves not to push too hard for a candidate or solution, which can backfire with directors.
Give successor candidates room to grow
Not surprisingly, many CEOs are not adequately prepared emotionally for the final stages of succession, especially when it is time to begin handing over specific responsibilities to one or more internal candidates. However, giving potential successors the room to grow and develop the skills they will need for the CEO role is one of the most important contributions the current CEO can make to the process.
It is, in fact, in the final stages of development that potential successors may need to gain experiences that only the CEO can facilitate, such as higher engagement with the board or external stakeholders, and it is up to the CEO to allow that to happen. Rotating responsibility for board meeting preparations between internal candidates and gives each exposure to each board committee.
When the CEO and board are active partners in the development process, the CEO may encourage some directors to mentor a executive, mainly to address specific developmental needs.
One mistake CEOs should avoid, said the search firm, is promoting a succession candidate into the COO role unless they — and the board — are reasonably confident that the individual will be ready in time for the CEO transition. It can be disruptive and embarrassing to the organization and the board of directors if they ultimately conclude that the COO will be unable to close critical developmental gaps and must seek other internal options or conduct an external search to find the next CEO. Our talent analytics identifies these gaps. The competencies are different at each level of management. Too many assume that I will continue to do what got me here. They are doomed to fail.
The CEO can help the board gain perspectives on internal candidates by encouraging directors to periodically share their points of view on the strengths and weaknesses of individual executives. These discussions can flag potential concerns early — when there is still time to address them — or allow the CEO the opportunity to correct any misconceptions directors may have.
Remember, how you leave is part of your legacy
In the final phases of the succession process, when the organization becomes increasingly distracted by the inevitable transition and speculation about possible candidates, it is common for the CEO to begin to feel like a lame duck.
I recall my first CEO type role, an executive manager with revenues of about $75 million utility operation. I was 31 and had just completed my MBA. I was going form leading a team of three to a staff of 75. The selection committee felt that I would benefit from a three-month overlap with the extended service executive, Walter Palmer, who was retiring. On day one, Walter turned the reins over to me. I had a tremendous amount of respect for Walter. I did not want him to feel like a lame duck. I suggested at a different alternative, where he would continue to run the show, and I would spend my time with customers and the staff. I wanted to gain insight into their challenges and identify opportunities. It was an excellent way to learn the business and how the CEO operated the organization. CEOs rarely get this advance insight. For internal succession, I would encourage this approach. Take the executive out of his or her role and give them the opportunity to gain some insight and build relationships.
In this potentially challenging period, CEOs should focus on their contributions to the business and the succession process and feel good that an essential part of their legacy is making sure that the board has a process that is going to lead to a significant conclusion for the company. The CEO also can be helpful in tracking how the organization is responding to a perceived or real horse race between candidates and prepare a response to keep the organization focused on the business, said the firm.
Once the board selects the next CEO, the incumbent CEO also may work with the lead director or committee chair to meet with the unsuccessful candidates and other members of the senior leadership team, with the goal of keeping as much of the team together as appropriate. With the CHRO, the CEO also typically ensures that the key members of the management team or external counsel are confidentially brought in to execute transition plans.
An additional question that arises is what ongoing involvement if any, the departing CEO will have with the company once the new CEO’s tenure begins. With the board, the incumbent CEO will want to consider what role he or she will play after the transition. If the CEO also serves as chair, the individual may be asked to remain on the board for a period as non-executive chair, or the expectation may be that he or she will leave both roles.
Other times, the departing CEO may play a role during the transition in making introductions for the new CEO or serve in an interim consulting role. Lastly, the CEO should be prepared to have a conversation with the non-executive chair or lead independent director about his or her future with the company and be willing to follow the board’s lead.
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