Steps Boards can take for CEO Succession Planning
The pandemic, and the global turmoil left in its wake, certainly made it clear that anything can happen. Implementing these leading practices for CEO succession planning can ensure the organization is ready for unexpected and planned departures.
With our clients, some strategies remained vital over the past few years, while others shifted rapidly, often out of necessity. Coming out of the great global shut-down and an uncertain economy, companies continue to face The Great Resignation-at every level.
CEOs are not an exception. A recent study by Deloitte found that approximately 70% of high level executives are seriously considering leaving due to :
- Factors impacting their physical and emotional wellbeing
- The impact of stressors of the past few years
- The effect the current business environment has on their lives
Regardless of outside forces, board members recognize that even the best strategy unravels and the entire organization can be jolted out of alignment without the right CEO in place. Yet some boards find themselves unprepared for a CEO exit, despite having succession as one of their key responsibilities. Several factors may get in the way of having a solid plan in place. Often more immediate challenges and performance needs capture their attention. Or the board may not be aligned on succession strategies. For some, raising the issue to a current CEO may feel uncomfortable.
Here are several leading practices your board can adopt to create and maintain effective CEO succession plans. Read on to download a more detailed description and further insights.
1. Identify who owns the CEO succession process.
- While the entire board may want to weight in on this critical decision, it’s more efficient and effective to designate a smaller group to lead the succession efforts while regularly engaging board members. This could be an existing board committee or a special committee for this purpose.
- Agree on the criteria to clearly define roles, responsibilities and how decisions will be made by this committee.
- Provide regular updates to the full board on the process, plans and candidates.
- The current CEO may have some involvement such as identifying and developing internal talent. In the case of a planned departure such as retirement, the CEO may suggest potential candidates and ensure practices are in place for a smooth transition.
2. Define the criteria for selecting the new CEO
- Agree on the experience, skills knowledge and leadership traits the new CEO needs to accomplish the organization’s current and future strategic goals.
- Refer to the strategic plan to help identify the traits most needed in a CEO to accomplish the organization’s strategic priorities.
- Consider changes the organization and the industry may experience over the next 5 years.
- Review the organization’s structure to determine if changes can or should be made to shift responsibilities or add positions. If the CEO also serves as the Board Chair, consider if this is the best structure going forward.
- Actively source diverse candidates that vary in race, age, gender and ethnicity.
- Consider the type of leader needed to shape the culture whether this be to nurture the existing culture or transform it to enhance performance.
- Identify the traits the new CEO would need to build relationships with and influence key stakeholder groups.
- Consider other parameters such as the number of external board or leadership roles the CEO can hold without interfering with the CEO’s responsibilities and any potential conflicts of interest.
3. Establish clear and effective planning and CEO selection processes.
- Describe goals for the process, timing and communication with the board. Include the CEO criteria, roles, responsibilities and how decisions will be made.
- Source in and outside of the board’s network to bring most diverse candidates and eliminate existing relationship biases.
- Use sound selection practices to mitigate the biases and inconsistencies that can otherwise lead to making the wrong choice in this critical role.
- Include valid behavioral assessments, appropriate for selection purposes, to discover each candidate’s preferences for leading, communicating, building relationships, taking risks, and making decisions.
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- Develop structured interview questions, determine who will be involved in the interview process, including the current CEO.
- Consider using team analytics to explore how the candidate’s style may influence or align with others on the leadership team and board members.
- Once a process for selection has been set up, ensure it is being used consistently to be able to make sound decisions and treat each candidate equitably.
- If using a search firm, provide clear criteria, questions to ask, assessments to include and stress the desire for diverse candidates. Have references conducted by a board member, not the search firm.
4. Ensure a smooth transition to onboard, introduce and support the new CEO.
- Ensure a transition plan is in place to help the new CEO get up to speed on the organization’s strategy, culture, goals, challenges, and stakeholders.
- Include a communication and change plan. Communicate the change and support of the board for the new CEO to all stakeholders- employees, media, members, etc.
- Consider the impact of promoting one internal candidate over another or in selecting an external candidate over an internal one.
- Examine a few potential change and risk scenarios and identify contingency plans to minimize disruptions.
5. Have an ongoing CEO succession plan and pipeline.
- Let the new CEO know that succession planning remains a continuous process.
- Be transparent about the organization’s succession process and responsibility.
- Review the succession plan at least annually with the entire board.
- Adopt these practices to bring greater effectiveness and equity.
- Constantly scan the external talent market and build relationships that can help identify leaders to meet current or future needs and increase the capabilities and diversity of the organization’s leadership team.
- Put an emergency or interim succession plan in place in the event the CEO leaves unexpectedly or is unable to work due to health or personal reasons.
- “How the best boards approach CEO succession planning- And why it’s become more critical than ever.” PwC. September 2021.
- Kelly, Jack. “CEOs are Quitting and Joining The Great Resignation- Here’s Why.” Forbes. June 29, 2022.
- Hatfield, Steve, Fisher, Jen, Silverglate, Paul H. “The C-suite’s role in well-being.” Deloitte Insights. June 22, 2022.
- “April ’22 CEO Report: CEO Exits Hit Highest on Record as Recession Fears Loom. Challenger, Gray & Christmas Inc. May 18, 2022.