|CEO Succession: Fact or Fairy Tale?
Top Four Tips for Successful Succession Planning
By Michael W. Howe, Ph.D.
Senior Consultant, Manchester Companies, Inc.
I know, I know … you are probably saying to yourself, hasn’t everything already been said that can be said about CEO succession? In fact, if you “google” the words “CEO succession,” within 0.34 seconds 1.2 million hits pop up on your screen. So if this much literature exists on the topic, why do most Boards of Directors go outside the company to hire CEOs? Why do so many newly hired CEOs have such a challenge achieving success? And, why is the average tenure of a CEO today less than four years?
How many of you who are corporate directors can truly say that you have a succession plan in place? If you suddenly, and unexpectedly, had to name a successor to your CEO, would you be prepared to do so? How long would it take your Board to make this critical decision, if even on a temporary basis? Be truthful now … you don’t want your nose to grow!
How many of you corporate directors have had an executive session with outside directors only, within the past year, during which the Board has asked each other what essential leadership experiences and background is necessary to guide your organization into the future? Have you asked yourself what impact your business strategy will have on the current and future leadership requirements of your enterprise?
If you are a member of a Board who recently named a new CEO, what steps did you take to assure that you were making the right strategic decision for your organization? What steps have you taken to assure the new CEO will successfully ascend to this position of leadership? Careful, I think I see your nose growing …
These questions are important governance issues irrespective of organization size, industry, or type of ownership. Whether privately held or public, for-profit or not-for-profit, a critical function of governance is to assure continuity of leadership. Readers of this paper from the Twin Cities area probably recall recent news stories about two high-profile school boards that suddenly discontinued their Superintendent’s employment relationship, for example.
Most corporate directors have experienced instances when replacing the CEO has become necessary. These experiences demonstrate that effective hiring is more of an art, than a science. So what can we do, as corporate directors, to assure effective CEO succession and to make an appreciable difference within the organizations we serve? Follow my Top Four Tips for Successful CEO Succession, and you will be well on the way toward making the process more scientific … and successful.
1) Accountability for Leadership Continuity
Let’s start with the fact that Boards need to believe that continuity of leadership is primarily a governance issue. An important first step is to make sure the leadership continuity discussion occurs within the boardroom. As the topic is addressed, be aware of the conflicting issues and ambivalence your CEO might have with this discussion.
It should be emphasized that a bright-line difference exists between Boards doing the work of assuring sustained effective leadership performance, verses the process Boards use when reviewing the performance of the CEO. This difference becomes blurred when the Board has lost confidence in the current CEO. Once it is understood that leadership continuity is the Board’s accountability, a CEO can become an ambassador for leadership development and begin to instill leadership succession as a core business process within the enterprise.
After the Board and CEO are in agreement about the need to plan for leadership continuity and appreciate their respective accountabilities, it is appropriate to ask the CEO to build a leadership talent review process within the organization and to bring the findings back to the Board for review. When a Board and CEO view succession planning as a proprietary strategic capability, then a smooth transition of leadership is almost certain. Most importantly, this process begins with each individual Board member developing a point of view toward the key leadership requirements that make your enterprise most successful. Wait a minute, Geppetto, that’s a fact!
2) Two Succession Plans, Not One
Corporate directors should feel reassured when they have thought through the CEO succession issues should their CEO, for whatever reason, suddenly and unexpectedly become unable to serve. While this is a most unlikely event, it would be a tragic, emotional, and probably confusing time for your organization. The Board Chair, or lead outside Director, should have an emergency plan of succession tucked in their top desk drawer. The plan might be to fill the role personally, or have another Director or an internal or external executive serve in the CEO role. Whatever the plan, it should be understood within the Board how in an emergency, although temporary, the leadership vacuum would be filled and communicated.
In addition, a second strategic and long-term succession plan should exist that anticipates a more systematic leadership transition. This plan should be built on the defined leadership requirements dictated by the unique long-term business strategies of the organization. The formality of this plan depends on several factors, including the career and/or the retirement plans of the current CEO, the readiness of capable talent within the organization to succeed the CEO, the sustainability of the success achieved within the current business plan, and how dramatically the leadership requirements might need to change to assure successful strategic plan implementation. This succession plan should outline the expected CEO selection process, determine how internal and external candidates would be processed, identify the core business competencies to be protected, and clarify the key challenges necessary to achieve the strategic plan.
3) Strategy Drives Leadership Transition
Successful CEO succession does not begin by identifying a successor (although ultimately a successor is hired). It doesn’t even begin by clarifying the accountabilities of the position (but these are important).
Rather, the most successful leadership transitions occur when the planning began with a deep understanding of the organization. Corporate directors should answer such questions as:
- What has made this organization successful?
- How has it differentiated itself in the marketplace?
- What are its enduring strengths and its vulnerabilities?
- What challenges must it overcome in the future for it to continue success?
- Is it on a good trajectory or is a radical change required?
- How do its various stakeholders view the enterprise?
- What are its future reputational, social, capital, physical, and human capital needs?
Okay, okay, enough already … these are basic strategic questions, but they are useful because we know that different strategies require different leadership capabilities. The answers to these questions help surface critical organizational success factors and the leadership qualities necessary to assure continued success.
4) Understand Unique Leadership Requirements
Organizations are like human beings, in that we all have some similar characteristics, but each is also very unique. Understanding the distinguishing characteristics of an organization often determines the success or failure of a newly hired CEO.
For example, all organizations are economic entities, their value proposition contributes to society in some manner, and they possess a human community. It is the confluence of these factors combined into a culture, and the success of that culture toward achieving business objectives, that is important to understand when making talent decisions.
Someone once said that culture eats strategy. In the same manner, it could also be said culture eats leadership. Leaders need to either reflect the culture they work in, or they need to make a conscience effort to change the culture. Matching a candidate’s personal attributes and leadership style with the organizational culture increases the likelihood of success. The more a Board search committee understands and agrees how it will represent the organization’s culture within the selection process, and then supports this decision once a new leader has been hired, the more likely a new executive will be successful in their new role.
Companies are easily categorized and differentiated by the industry they are in, their size and complexity, and the strategies they have in place. Our experience tells us that the more a potential candidate has gained leadership experience with similar business situations, the more likely the candidate will be successful in a newly presented opportunity.
This is not a new concept, but it is worth repeating: the best predictor of future success is past success in similar situations. The greater the specificity with which these requirements are understood, the more closely each candidate can be assessed against them, and ultimately, the more likely the Board will make a sound long-term decision. And this is the Board’s work, not the work of a hired search firm.
So what’s the answer to the question: “What can corporate directors do to assure greater success with CEO succession?” First, take accountability for leadership continuity, and then make sure both an emergency plan and a long-term succession plan exist to assure an orderly transition. In addition, the Board should do the hard work necessary to truly understand the organizational dimensions that make this enterprise unique and then build their leadership requirements and succession practices on them.
And, in this way, the Board makes effective CEO succession a fact … and not just another corporate fairy tale.
About the Author
Mr. Howe leads Manchester’s Leadership and Organizational Effectiveness Practice, which provides leadership continuity planning, among other related services. For over 25 years, Mr. Howe has been a strategically focused executive with extensive experience translating business strategy into effective leadership practices and organization results. As a corporate executive and corporate director, he has successfully addressed the leadership and organizational implications of mergers, acquisitions, divestitures, closures, start-ups, and joint venture operations. He is a thought leader who blends leadership theory with practical business strategies and is known for creating a sense of vision that inspires the contribution of others.
Prior to joining Manchester Companies, Mr. Howe was Executive Vice President and Chief Administrative Officer at Allina Health System. He served as Chief Human Resources Officer at HealthSpan Health System, Health One Corporation, and Health Central System. Previously, he taught at the University of Minnesota and led the human resources and career development program at Xcel Energy. In addition, Mr. Howe currently sits on the DeCare International Board of Directors, and the University of Minnesota School of Business, Industrial Relations Center Advisory Board.
Mr. Howe earned his Doctorate and Masters Degrees from the University of Chicago Graduate School of Social Service Administration and received a BA in psychology from Mankato State College. His professional memberships include the National Association of Corporate Directors, Academy of Management, Society of Human Resources Management, American Psychological Association, and Organizational Development Network.
He has been published in the areas of human resources management, aging, and behavior modification. In addition, he has served on the editorial advisory board for Healthcare Human Resources Journal and on the executive advisory panel for Academy of Management’s Executive Journal.
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