REFLECTIONS ON CEO SUCCESSION PLANNING
CEO succession is not easy. Knowing what your company will face in the future, trying to prepare executives to run your company, and then selecting the best possible candidate from a group of internal contenders (and comparing them with highly qualified outsiders) is a truly complex challenge.
The succession process is really about making your best estimate about the future, and we simply don’t know what the future holds. The process also creates expectations and sensitivities among some of your company’s most critical stakeholders: the Board of Directors and current CEO, your biggest customers and investors, and your high potential employees. Is it any wonder that many companies approach this so tentatively—or have no CEO succession planning process or viable internal candidates at all?
Developing and selecting a Chief Executive Officer is the most critical talent decision that your company has to make. Our experience has taught us that there are three critical ingredients necessary for this process to be executed effectively: time, planning, and the coordination of critical stakeholders.
Despite the importance of this process to the future success of the business, many CEOs underinvest in it, and most Boards spend too little time on it.
There’s a Chinese proverb that applies here: The best time to plant a tree is 20 years ago. The second-best time is today. If you don’t have a succession planning process in place, you’re missing the structured approach that will allow you to start actively growing and assessing your company’s future leaders. If you do have one, we hope these five points will be a help as you refine your process.
1. You should be working on CEO succession right now. The identification and development of future CEOs should be a continuous process. Failing to invest time and energy into CEO succession planning increases the chances of selecting an external candidate for the job. This can increase the risk of a disruptive leadership transition while concurrently leaving your best and most ambitious employees with a sense that you do not see long-term opportunities for them at your company.
Many companies do the minimum in ensuring CEO succession– they have a CEO replacement plan rather than a CEO succession process. The hallmark of a replacement plan is that there is a single heir apparent, limited development, and no substantive evaluation. While having a replacement is better than not having one and avoids an unplanned transition, this is a short-sighted approach that can leave the company beholden to the heir and diminishes all of the other organizational and cultural benefits of a true succession planning process.
You need to start right now because it takes a long time to grow a CEO. Our experience is consistent with research that says it takes 18 months to three years to get highly qualified candidates ready for the job. Developing and evaluating an executive’s ability to run a company takes years. The requirements of the Chief Executive are so different than those for other jobs that you have to construct and implement opportunities to stretch executives in new ways to evaluate their progress on these developmental assignments. You need the time to implement these developmental opportunities, and the candidates need time to react to them, develop, and consolidate the new skills from these experiences.
A strong succession planning process is good for your company because, among other things, it strengthens your culture by creating a sense of accountability at the top. It’s an important factor in retaining your high potentials and sends a strong message when recruiting the best in the market. Your most ambitious people want to know that they have a shot at the top jobs, and they will benefit from seeing that your company proactively works to prepare future leaders. This engenders faith in a process that generally functions quietly and behind the scenes.
The Board and senior management shows its faith in the company’s people when there is a process in place to grow future leaders from within. Confidence develops across the culture because of the implicit message that the Board and company leadership are planning for continuity of leadership, a key to building sustained performance.
2. The Chief Executive job is not a bigger version of other jobs. The skills and capabilities that get an executive to the leadership team will not necessarily help them succeed as CEO. This makes getting leaders ready and then selecting a CEO especially challenging. Adding one more layer of challenge: most CEOs don’t have a track record at the Chief Executive level—most companies select first time CEOs—and even an experienced and successful CEO at one company isn’t the right leader for another.
As a result, it’s important for the succession committee to have a real, grounded sense of what your company is looking for in a Chief Executive and what the company needs to be successful going forward. This means you (and your Board) need a deep sense of the company’s strategy, direction, capabilities, and a solid point of view about how these translate into what is required from your next leader.
If you think that sounds easy, it isn’t. There is usually a diversity of opinions on this, and getting the key stakeholders aligned and in agreement requires time and effort.
You also need to know how to give your executives a “try-out” on aspects of their job that are hard to run a “try-out” on. This can include things like:
Demonstrating industry leadership
Knowing when to challenge the company’s existing culture and when to support it
Measuring their credibility with investors
Knowing the company’s true capacity and having a point of view on how to increase it
Setting the company’s long term direction
Leading through difficult situations with very high stakes
Because the CEO job is qualitatively different from the jobs they’ve had in the past, the demands of the job are often a set of unfolding surprises for new CEOs. Despite this, many go through the experience with relatively little support. Working with someone who knows the important stops on this journey can be a big help.
3. You want CEO transition to be planned (and you want your next CEO to come from inside the company). If your transition at the top cannot be planned, you want to have quality options from within so that it at least runs smoothly. If you aren’t working on this now, you are in danger of having to make the most important decision under intense pressure, potentially choosing from a pool of relatively unknown candidates.
The CEO succession process can be a delicate one. The sensitive nature of the process seems to be a leading reason that many companies don’t get to it until the very last minute. The process requires care, coordination, and ongoing management, but the payoff for undertaking this work is very high.
Like any important business process, this one requires thoughtful management, particularly the coordination of the most critical players: your current CEO and Board of Directors, your most important investors and customers, your highest potential employees, and your HR leader. If you do not have a recognized and well-defined approach, you increase the confusion and turmoil associated with replacing your company’s leader.
If your Board and leadership team don’t understand the company’s plan ahead of time, you can end up trying to build and implement the process while influencing these powerhouse stakeholders to follow it. And remember, this is a problem that often brings with it maximum attention from all of these stakeholders. No one does their best work under these circumstances.
You want the option of choosing an internal candidate for the top job. Sure, sometimes you have to select the new leader from outside the company because things are not working, and you need new ideas to shape a new direction. When the current CEO is leaving because a turn-around is required, you often have to select an outside leader. However, internal candidates tend to perform better and have a longer average tenure than outsiders. Generally, those who helped develop your direction can often better implement and extend your strategy. It inspires confidence when the company has ready candidates to take over.
Your employees, investors, and other interested parties want to know there is a clear and merit-based path to the CEO role– a legitimate way for the company to staff itself at the top that is fair, clearly defined, and is in place to serve the company’s sustained performance. The process itself shows the faith in the company and its people, faith that is more than likely to be reciprocated.
4. Don’t let small things get in your way. Because of some of the sensitivities that this process raises in important people like the CEO, Board, and highly ambitious executives, we have seen some companies get caught up trying to do succession planning “perfectly” from the start. The result being these companies get caught up in the minutia or work too hard for too long to make sure that no one is unhappy about any part of the plan. This leads to significant delays in putting a process in place (or never getting to it).
Here’s a good example: There is a good and worthy debate as many companies implement a rigorous succession planning process: Do we tell our high potential employees that they are our high potential employees or do we not tell them? It’s important to decide the answer to questions like this for your company. These answers have an important impact on your culture, but it’s even more important that you do not let making sure that everyone is in agreement with each one of these decisions get in the way of implementing your succession planning.
5. Selecting the right CEO for your company is hard. Yes, we know that this is how we started the article, but it really is. There are terrifically talented people with great training and experience, a powerful perspective on business, and a real gift for articulating their vision who will want to be your CEO. Sorting through these great executives to find the best person to run your company means knowing your company deeply, with its unique market position, core capabilities, and culture. And we cannot forget the human element. The decision makers at your company also have relationships with your internal candidates and their own opinions and biases about your candidates.
Successful succession planning processes require a disciplined way to evaluate your company’s needs and a fair and rigorous process for evaluating your internal candidates and for comparing them to qualified executives from outside the company. Get outside help in order to ensure you make the best decision possible about who will lead your company into the future.
If you’re working on developing the right succession planning approach or looking for ways to supplement your process, The Leadership Collective is something you should know about. Fill out this form to get some more information and resources: