GUEST AUTHOR BLOG: The Neglected Elements of CEO Succession Planning by: Dr. Thomas J. Saporito and Dr. Paul Winum authors of "Inside CEO Succession: The Essential Guide to Leadership Transition."
Corporate succession practices have changed dramatically since the decades from the 1950s through 70s, when a more straightforward business environment prevailed.
At that time, a successor was often handpicked by the departing chief executive.
The role of the board of directors was limited to reviewing the CEO’s choice and casually giving the candidate their rubber stamp of approval.
Here in the present, the lackadaisical practices of yesterday are hopelessly and dangerously outdated.
Regular headlines about messy CEO transitions are the new reality. The succession plans of global companies are increasingly being called into question even as the importance of succession is widely recognized. More alarming still, even companies that make CEO succession planning a priority are failing in their execution.
Why the confusion? RHR’s experience and research have determined that there are three crucial CEO succession themes that must be carefully managed by corporate boards.
Today, succession responsibilities (and blame) fall primarily on the board of directors, and the accelerating pace of business has placed unprecedented scrutiny on the succession planning process. CEO succession is the most critical responsibility of a board of directors, with far-reaching effects on the wellbeing and future success of an organization. This includes considerable upside or downside implications. A mismanaged CEO succession can have disastrous results, including significant financial losses, degradation of market share and competitive positioning, departure of key talent, or reputational damage to the brand.
Ultimately, a company’s succession planning outcomes are a reflection of the preparedness of its board of directors. By treating succession as a critical business continuity issue, companies will avoid the potential damages that come with starting the process to late, inadequate preparation of internal talent, insufficient evaluation of candidates, a messy CEO transition period, or failure to use succession as an opportunity to align on strategy.
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In a joint RHR International/Chief Executive magazine study of 236 corporate directors, 95 percent of respondents acknowledged that CEO succession is a critical business continuity issue. Yet more than half (53 percent) rated themselves as “ineffective” in executing their responsibilities in this area.
This dissonance between “knowing” and “doing” leads to inaction. As a result, succession planning (as seen by the directors surveyed) is determined by a different, and far less reliable, set of variables:
• 67% cite too few qualified candidates to select from;
• 60% feel their skills in interviewing are inadequate;
• 50% feel ineffective due to a particular strong director-candidate relationship;
• 44% claim there’s not enough time; and,
• 41% admit that they give too much credence to the candidate’s resume.
Corporate boards must learn to develop an expertise in CEO succession that accounts for this Knowing-Doing Gap and pays heed to the psychological tensions that attend every step of the process.
The Devil is in the Dynamics
Too often, even the most carefully managed successions fail to account for one crucial factor: human dynamics. Psychology—and associated matters of trust, competition, communication, legacy, and ego—are part of every stage of the CEO succession process. In fact, the relational challenges (both interpersonal and intrapersonal) of CEO succession are an important contributor to chief executive failures.
A Complete Process
When a successor is chosen, boards often pat themselves on the back and assume their succession responsibilities are complete. However, selecting the next CEO is only half the battle. Boards must pay careful attention to the transition period and to a new CEO’s early years of leadership. This period of transition and integration is a minefield of potential challenges that must be managed with strong board guidance. Directors must work closely together on matters that include determining whether the outgoing CEO should remain on the board, the extent of the transition period between the outgoing CEO and incoming CEO, strategy alignment with the new CEO, and ensuring that the new CEO has the resources and counsel necessary for successful integration.
Directors who understand that succession is an important matter of business continuity rather than just the act of placing a new name on the corner office door are well on their way to securing their company’s future. Boards will elevate their succession practices and further mitigate risk by acknowledging the unavoidable presence of human dynamics. Addressing these tensions and assuring open and honest communication among all parties is ultimately the most important succession-related action a board will take.
“Inside CEO Succession” is co-authored by RHR International Chairman and CEO Dr. Thomas J. Saporito and Senior Partner Dr. Paul Winum. RHR International is a global firm committed to the development of top management leadership.