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Kelly: Companies Failing to Manage This Risk

Two hours: That’s the average time per year boards of directors spend on CEO succession planning. Think about it. That’s less time than a round of golf, an average feature-length film, or a dinner out. This shocking statistic leads to one outstanding question: in an era of microscopic public scrutiny and ever-rising shareholder activism, how is it that so many boards of directors appear to be “asleep at the switch?”

A study conducted by Stanford University’s Rock Center for Corporate Governance and Heidrick & Struggles found more than 50 percent of companies in North America cannot name a CEO immediately if needed, and close to 40 percent admit they have no internal candidates under consideration at all.

The fact is, CEO succession planning should be treated as carefully as any other form of risk management. A company’s value is often tied to the leadership and reputation of its CEO. The company caught without a roadmap for how to pass the baton – and to whom – runs the risk of long-term damage to its reputation and market capitalization, months of upheaval, staff uncertainty and lost sales.

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CNBC.com

The recent flurry of CEO succession gaffes should wake us up to the fact that companies need to have a process in place to identify and assess viable candidates in the event of CEO turnover – whether unexpected or otherwise. It is the board’s job to mitigate risk so there are no surprises: boards should take the time to re-assess rosters of internal and external candidates at every meeting.

Successful succession planning is not easy. Companies walk a fine line between lining up a new CEO “just in case” and appearing to undermine the current CEO. Often, boards of directors find it awkward to look for a new CEO while the current one is in place, especially if a candidate’s vision or skill set differs from that of the current executive. While each company must approach succession planning in light of its own culture and operations, there are a few key golden rules for managing CEO succession:

  1. Know your insiders: Systematize the process of identifying, assessing and developing internal candidates.
  2. Follow strong outsiders: Identify and assess external candidates to ensure competitive candidate pool.
  3. Refresh constantly: Update your roster on an ongoing basis to maintain bench strength.
  4. Be transparent about the criteria: Minimize the risk of losing top talent once the decision is made by making the criteria available.

It is time for boards to prioritize CEO succession – no board member can afford to take this key responsibility for granted.

L. Kevin Kelly is the CEO of Heidrick & Struggles International, Inc. (Nasdaq: HSII). The firm provides executive search and leadership consulting services in the Americas, Europe, and the Asia Pacific. It facilitates the recruitment, management, and deployment of senior executives. The company’s leadership consulting services include succession planning, talent retention management, executive assessment, executive development, transition consulting for newly appointed executives, and M&A human capital integration consulting. Its customers include Fortune 1000 companies; the major non-U.S. companies; middle market and emerging growth companies; governmental, higher education, and not-for-profit organizations; and private and public entities. The company was founded in 1953 and is headquartered in Chicago, Illinois.