At the ten-year mark of his tenure as CEO, David thought he should no longer postpone naming potential successors, though the board said it would be happy if he stayed on for several more years.
He chose two candidates: the CFO and the head of the largest commercial business. However, that is where the succession planning ended. There was no formal process by which to evaluate, select and develop the candidates. The ensuing year brought chaos.
The two selected executives formed camps of loyal followers and began undermining one another at every turn. They appeared to the CEO to be engaged in collegial, healthy competition. The reality nearly tore the company apart. The dueling turned bitter, prompted poor decisions, and inspired bad behavior down through the organization, culminating in a potentially fraudulent practice by one candidate. Both were dismissed. The CEO stayed three more years as the board hired a search firm, vetted candidates, chose a president, and prepared to transition the next chief executive.
The danger of failing to plan
While this is an extreme example of failing to plan, many organizations can attest to the bitter internal struggles, organizational disruption, prolonged uncertainty, and negative impact of not having an orderly succession plan.
It does not require complex analysis to understand why many don’t do this. A board typically has confidence in its CEO and gets comfortable with who they have at the helm. They are focused on other fiduciary duties and are often satisfied seeing other senior leaders in the boardroom on a limited basis. Months turn into years. Complacency ensues.
And there is the CEO. Who among us wants to contemplate our own “mortality” in a job? For CEOs, this may be the last job before retirement. As they focus on the here and now, postponing the process may not feel as risky as it is.
Why is it important to start planning now? The average tenure of CEOs has plummeted, from 8.5 years in 2003, down to 3.7 years now. This alone is reason for every board and CEO to begin within three to five years of the anticipated transition. Although it might sound absurd, one implication of this is that new CEOs should start thinking about their own successor during their own first 90 days.
Embracing the both/and mindset
The answer to overcoming complacency is to adopt a “both-and” mindset. The board and the organization can support the CEO AND plan ahead. An orderly process not only secures your company’s long-term success and stability; it is one of the last acts of a CEO to create a well-paved path to future success, and a powerful, positive legacy.
Most experts believe it is best to start at least 3 to 5 years in advance. If you take a “both-and” approach, you are instituting a rigorous program that includes identifying, assessing, and preparing top internal candidates for the role. You get behind the CEO today while developing the best internal candidates for the future. You can always go to an external search closer to the decision time, if warranted.
The urge to anoint a successor
It is tempting for CEOs to select one or two “obvious” CEO candidates. However, we all have conscious and unconscious biases. Starting with a broad search and resisting the urge to anoint a successor, is a far better guarantee of success. The larger pool and rigorous selection and development process not only avoids the negative dynamics of being seen as playing favorites; you are less likely to miss other top-notch candidates, particularly those with a different perspective, or cast in a different mold from the current leader.
Boards can fuel the tendency to let a CEO anoint a successor. They may rely on the CEO to determine who should make presentations to the board. They may be guided almost exclusively in their conversations by the CEO’s view of the candidates. Boards should encourage the CEO and CHRO to embrace a transparent robust process of creating a profile of the next chief executive well in advance, assess the candidates, coach them, and prepare them with high value experiences.
Start with a CEO profile
The beginning of a rigorous succession process is to build a CEO Profile. What does the organization need in its next CEO, or, for that matter, any C-Suite leader? The CEO Profile can be developed collaboratively with the help of experts in an objective process. External expertise will help you to consider all the factors of success including the strategic vision and market dynamics that a new chief executive will face.
Even if the company is doing well, “more of the same” may not deliver on quantum growth or a competitive shift that can be a game-changer. The Profile provides flexibility to move in a new direction. One board we advised took the opportunity to radically rethink CEO selection as the company reached a pivot point, selecting a leader particularly well qualified to help the company change course.
Data and insights: an objective view
Once you have a well-developed CEO Profile the next step is to gather data, assess, and share these with potential candidates as part of their development plan. The organization and the leaders learn about their strengths and gaps and have the motivation and time to develop the capabilities they need most to do the job. Even your best candidates will not have it all. By providing data and insights and combining that with coaching, feedback, and new experiences, you can establish a unique program to prepare each candidate for the top job.
1. Assessment data
Assessment is an objective way to appreciate what leadership qualities, skills and experiences each candidate has now, and use the data to inform their development. What gets a leader here may not help them to ascend to the chief executive role.
A 360 assessment provides an objective evaluation about how the leader is showing up to others. One CEO candidate we assessed with the Bates ExPITM was exceptionally skilled at the technical side of the business, but needed to learn to inspire, energize, and align others to drive results. He embraced this data because he was able to tackle the right things to become a more well-rounded candidate. There are many types of assessments appropriate to the development phase of CEO succession. The key is to assess against your profile and get a detailed perspective.
2. Performance data
The second set of data to review and use in development is the candidate’s performance in recent roles. What results have they achieved? Savvy organizations create a sophisticated overview of performance by evaluating both the results achieved, and how the leader achieved them. Leaders that break the rules just to get bottom line performance don’t belong in a CEO succession plan.
In addition to business performance data, you can look at other data that already exists. Employee engagement surveys specific to that leader’s organization can be tracked over time for a historic view. Customer surveys, vendor surveys and interviews with direct reports can round out the picture of how the leader achieves results. As a coach works with the candidate, this data should factor into the development plan.
3. Career experiences
This third stream of data and development looks at a candidate’s ability to operate outside their comfort zone leading cross-functional, high impact initiatives. One company asked a sales leader with a take-no-prisoners approach to generating revenue to lead a new acquisition. She had to flex her approach and lead the team to collaborate, build agreements, and align. She was successful. Her CEO endorsed her candidacy, as the company planned to grow by acquisition in the future.
Bringing CEO candidates into adjacent or very different roles with new requirements gives them another view of the business, and tests untapped capabilities. Appointing leaders to be the executive sponsor or leader of a major transformation or change initiative is a powerful test. You want to see candidates deliver on a variety of fronts, such as enterprise technology implementation, or driving change in a go-to-market strategy or operating across multiple functions. Putting leaders in these critical roles develops their capabilities and gives you confidence they are ready.
In summary: the succession checklist
A robust succession management system is something you can always be doing, to support an ongoing pipeline to the C-suite. If this is not in place in your company, now is the time to get it right for later.
- Start early and initiate a rigorous process
- Resist the urge to anoint a candidate like you
- Provide the candidates with data and insights for strategic development
- Prioritize their development with coaching and stretch experiences
- Think of succession as a virtuous cycle that makes your organization healthy and strong