Friday August 1, 2014
DIRECTOR ADVISORY

Demystifying the CEO Succession Process

Directors must have a plan in place for one of their most important duties: choosing the next CEO.

CEO succession planning is an essential element in driving an organization’s sustainable growth, profitable performance and continuing success over time.

As a result, there is no more important responsibility for any board of directors. Yet many directors devote only cursory attention to what should be a vitally important endeavor, delaying the succession-planning dialogue until pressure-filled circumstances necessitate a rushed or unplanned transition at the top. This is unacceptable. As the CTPartners Board of Directors Institute on Human Resources has highlighted, companies that may best be characterized as failed or failing are all too often the same companies that have failed to devote adequate attention to succession planning.


Keith Meyer

Why do boards delay or overlook this process? Explanations abound, although none justify the failure to act. Directors may be somewhat intimidated by CEOs who hold management reins too tightly, or they may fear the complexity of the succession- planning process. In other cases, boards fail to appreciate the risks they will face, either when they find themselves ill-prepared for a necessary leadership transition or when forced to choose between limited options.

As growing numbers of boards have learned, however, there is, quite simply, a better way: one that is structured around a timely, thoughtful and comprehensive CEO succession-planning process. Ultimately, it should involve a best-in-class field of internal and external candidates in order to truly identify the right leader for the future and then prepare him or her to assume the post. This process needs to start, as many business experts agree, with a concerted effort to achieve full alignment between the board, the current CEO and the chief human resources officer regarding the future CEO success drivers.

Without the right strategic frame of reference, there is really no “true north” to guide the succession process. Board discussions should focus on the company’s major sources of long-term growth and value creation, optimal timing for the next leadership transition and meaningful criteria with which to evaluate potential candidates and define future CEO success.

When it comes to succession planning, we have found that “one size fits one,” where the process works best and most effectively when tailored to each organization’s specific needs and circumstances. Many of the complexities and problems that boards associate with succession planning stem from a misguided attempt to impose a standardized “cookie cutter” approach to every organization. How could Apple, GM and P&G use a common succession approach when their leadership models, corporate cultures, industry dynamics and future value-creation challenges are so different?

A key early success factor is to build upon existing top-team assessment and CEO succession-planning information, and then embed a SuccessionSigma™ architecture as the board moves from alignment to action. The primary objective is to craft and carefully orchestrate a succession plan that is custom-built, results-oriented and fully transparent.

One reason that directors fear the complexity of succession planning is that they have little or no experience with it. Some directors struggle with how much autonomy to give the current CEO in setting the succession pace and developing the short list of future candidates. Other directors find it difficult to challenge the CEO’s thinking on the key success criteria of the next CEO, while some boards underutilize the chief human resources officer throughout the succession process.

We have found the most successful CEO transitions involve a few critical “non-negotiables” along with an open, transparent communication channel between the board and current CEO. In one recent case, the board self-identified its own performance to be one of the most important factors in its CEO success and took action to improve the way the full board and committees operated in parallel with executing a successful CEO transition.

CEO succession planning is not a simple, straightforward exercise. But as with training for a marathon, with the right discipline and rigorous preparation, results will almost always be impressive.

Keith Meyer is vice chairman and head of Global CEO & Board Practice at CTPartners. Email him at kmeyer@ ctnet.com.

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