A leader’s lasting value is measured by succession.
John C. Maxwell, Leadership Author
Succession is defined by the transfer of a particular office or status to another individual. It sounds straightforward but it comes with plenty of variables. Your CEO resigns, retires, or is shown to the door.
Sometimes it’s an unexpected exit. Whatever the reason, you now need a new captain at the helm. You ignite your succession plan that ideally has been created well before your CEO steps out of office.
Don’t back shelf the plan
CEO succession is one of the most important tasks that a board has with the responsibility to make succession planning a priority. Paying lip service to a tucked away road map can bring about dire consequences. Neglect your succession plan at your peril. You may be wrongly assuming the aspirations of your executive top tier as they may not be as committed long-term as you expect or they may want to expand in other directions.
Take the long view in identifying CEO prospects. It’s common for boards to be unfamiliar with the true capabilities of senior ranking executives, instead remaining focused on CEO performance. Conducting regular leadership assessment and 360 performance evaluations of the executive team is a must, as is providing opportunities for movement across the organization to develop broader capabilities, thus readying them for the top job. This should be an on-going process.
Keep an eye on the calendar as part of your succession planning strategy. The board should initiate bi-annual check-ins to review the succession plan in tandem with the HR head. Operating as if the search for a new leader were being held today, they should also review the CEO role description and capabilities requirements to align with the organization’s strategic objectives and current business environment, and recalibrate the document as needed.
Escape failure to launch predicaments by ensuring that the board has succession on track and implementation can occur without delay when the need arises.
Get it in writing
Be sure to draft your succession plan in written form as a comprehensive framework for moving forward. Your plan should include:
- How company officers are elected and replaced.
- How successors are to be selected and what specifically are the roles of CEO, the board, and various board committees in the succession process.
- Emergency procedures, in the case of sudden death or vacancy.
Following succession templates may be helpful but you might find that they lock you into a limited viewpoint. No company is a carbon copy of another. Your organization is a one-of-a-kind design with a kaleidoscope of personalities, performance, functions, and moving parts. It’s vital that you move beyond generic models and instead fit your company’s unique talent, vision quest, and operational needs into a flexible leadership blueprint.
Insider or outsider considerations
Respect your existing pipeline of talent. You may find the ideal CEO is in your current ranks. If revenue is solid, operations are stable, and prospects are bright, an inside pick can be a wise decision. In fact, the majority of CEOs are found from within the organization according to a working paper from the University of Toronto.
Internal candidates – so integral to your corporate brain trust – normally get up to speed faster than an outsider candidate. Recognize the depth of their insider institutional knowledge and pay heed to their aspirations. Promoting from within can boost overall employee morale and safeguard the flow of continuity.
On the flip side, maybe it’s time for a pair of fresh eyes from farther afield. External hires produce CEOs who operate with greater boldness and aren’t attached to existing strategies and operational parameters. Choosing an insider guarantees a familiar face to rank and file, however, an external voice could prompt creativity, innovation, improved diversity, and necessary change within the organization.
Expect a C-suite round of musical chairs when an outside CEO comes onboard. Overall, key positions are normally replaced most often affecting the roles of CFO, COO, and CHRO. An internal promotion often has more stability for the leadership team provided that the appointment has been very carefully managed through an objective, rigorous, merit-based, and equitable process.
C-suite tenure ↓
The average CEO tenure has fallen to 6.9 years according to a 2019 Korn Ferry analysis. That’s down from 8 years tenure in comparison to 2016, equaling a 14% drop. Succession doesn’t just start and stop with the CEO. Consider all of your leadership positions that are critical to the workings of your organization and are vulnerable to information/operation loss. Gaps in essential areas can bring about turmoil and instability if neglected. Embrace sound risk management with a proactive planning process that encompasses pillar internal positions.
Across industries, the average tenure of a CHRO has decreased from 5 years to 3.7 years. Looking at CFOs, the average tenure is just shy of five years, according to a U.S. study by Crist Kolder. During the pandemic, companies have been reluctant to change their finance leaders, and in some cases, CFOs have delayed retirement, reports Financial Management magazine.
Clearly boards need to stay alert to the revolving door of executive talent and act to improve leadership longevity. Short tenures are a telltale sign that you need to reboot your C-suite design formula. A complex succession strategy also factors in key positions outside the C-suite. V-level executives (VPs, SVPs) and D-level (department directors) should be encouraged to pursue professional development that may include external coaching or mentoring to spur an upward shift in managerial roles. Delegate more decision-making in V and D-level ranks, give them challenging assignments, and champion their ideas to build a deeply entrenched line of world-class understudies leading directly into the C-suite.
A steady hand at the wheel
A strong leader has a deep impact on an organization, reverberating throughout departments. Staff confidence can be upended when a CEO is heading for the exit. It may create a wariness of what’s to come. How will their work change and will they survive the transition? It’s possible that the incoming CEO has a new agenda with plans to steer the ship in unfamiliar waters. Will changes happen system-wide? Is the corporate culture going to be uprooted? Don’t just ready the executive suite for a new CEO. Ongoing communication with the entire body of staff is crucial to inform, engage, and get buy-in to avoid distrust, disarray, and high turnover.
There’s no one-size-fits-all approach to a succession plan. As the pandemic has shown, waves of disruption and economic uncertainty demand of us the ability to shapeshift and adapt quickly to new realities. Don’t struggle needlessly. Optimize the capabilities of your board and executive ranks with Lansdowne Board Intelligence. We have local and global experience, with the passion and expertise to find you the relevant candidates whose knowledge, perspectives, experiences, and skill sets represent the reality of today’s business world and bring exceptional value to your organization.
In our next issue – Selecting Your Next Leader: CEO Succession Tips Part 2
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