A new financial arena has forced boards to take a hard look at their strategy for CEO succession. Carlos Rivero, president of North American operations for Oliver Wyman-Delta Organization & Leadership, and senior partner, Deborah Brecher, weigh in on what challenges lie ahead for boards planning succession tactics.
“CEO tenure is decreasing over time,” says Rivero. “We expect tenure to decrease as the economy continues to worsen.” In addition to an increase in CEO turnover, shareholder activism has also become a steadfast voice that was not present only 10 years ago.
“Activist investors are a new dynamic,” says Brecher. As a result, directors are becoming more proactive and are taking the initiative to educate themselves and open up communication with both management and shareholders. To avoid discontented investors, boards and current CEOs need to work toward adequately researching a CEO successor.
“Boards are evolving into more active and assertive directors because it is their responsibility to investors,” adds Brecher.
Brecher believes that sometimes a CEO may make an effort to get to know a potential candidate but unsuccessfully communicate the candidate’s qualifications to the board. “The CEO liking the person isn’t going to be enough to convince the board,” adds Brecher.
Avoid Surprises
Working out a succession plan is an ongoing process and to avoid bombshells, management and the board need to open up an ongoing dialogue. Rivero advises boards to take the reins and steer the process of vetting potential candidates. “Don’t expect CEOs to initiate [the succession process],” says Rivero. “It’s the board’s responsibility.”
Once the process is started, realizing how much time will need to be invested is important. “You have got to start early—expect the process to take three to five years,” says Rivero. “CEO contracts stop in two years—that’s not enough time to figure out the next successor.”
What to look for in a potential successor is also crucial. “If a company had a successful CEO, and they’re looking to merely replicate that, or are looking for the mirror opposite if the predecessor was unsuccessful—the company’s needs are not being addressed,” notes Brecher.
Have a Pool of Candidates
“Don’t box yourself into a corner,” warns Brecher. “You have to have a pool of people—not just a select few.” Also, expect people to leave during the vetting process. A lot of egos are at stake and being passed over doesn’t always resonate well and people leave.
“Have a short-, medium-, and longer-term plan and take into consideration that the pool will get smaller as people leave,” says Brecher. Over three to five years, a CEO and board can find that a contender they thought was a likely candidate two years ago is no longer an option.
Rivero advises that a successor must be able to bridge both the political and emotional gap between management and the board. “Don’t be afraid to lose someone—but make sure you lose the right person,” he adds.
A Different Breed of CEOs
“For a long time, the CEO job wasn’t paid attention to—they ran companies, they weren’t celebrities like they’ve become,” says Brecher, who believes the change has to do in part with many of the high profile Wall Street executives. “A CEO is no longer a commander delegating rules to troops,” she says. “The position of CEO is going to ease back into a more quiet place.”
With the increased responsibilities and liabilities associated with the position, Brecher says that collaboration will be emphasized more than ever. “[CEOs] are going uphill—you can’t do it without a team now,” she says.
A well-rounded CEO will exude the qualities that promote team building and have the ability to make the hard decisions. “Guts—at the end of the day you need someone who will make the right decision, which is often a difficult one,” says Rivero.