Ensuring a Successful Executive Transition
Succession executive and succession planning is the board’s fiduciary responsibility to assure that shareholders/members continue to receive an uninterrupted and undiminished flow of value-driven products and services in the event of a planned or unplanned leadership transition.
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Your legacy is at stake, no business is too big or too small to plan for the future, and there is no time like the present to get started. – Shawn Cole, President
The transition from one CEO to another is a critical moment in an organization’s history. A properly designed and executed succession plan is at the center of any successful transition.
CEO Vacancies can be Planned or Unplanned
In either scenario, by the time a succession plan is needed, it is far too late to start building one. Because of this, it is the responsibility of the board to make succession planning an annual priority, even in the face of more immediate and tangible issues. In addition to being necessary for risk mitigation, succession planning brings with it several beneficial byproducts:
It provides a framework that drives senior executive development, aligning leadership at the top of the enterprise with the strategic needs of the organization.
It gives the CEO, through an ongoing analysis of the job requirements, the opportunity to adjust his or her role in light of changing business conditions and strategic imperatives.
It strengthens the relationship and information flow between the board and the senior management team through the regular contact that is part of the board’s review of candidates.
Establishing the Foundation
Succession planning is usually directed by the board or board subcommittees. The current CEO’s involvement varies (depending on whether the succession is planned or unplanned) with the primary responsibility being the development of internal candidates. The Lead Director often acts as the single point of contact between the board and the sitting CEO on succession matters.
Involve the Current CEO as Much as Possible
CEO’s have a critical contribution to make in an effective CEO succession planning process. By encouraging the board to start planning early, overseeing a robust executive development program that produces succession-ready executives, stepping back at the appropriate time, and giving internal candidates the room and experiences they need to grow, the CEO will play a vital role in developing and sustaining a strong leadership team — as well as producing viable successor candidates. Keeping that legacy in mind may help CEO’s manage the personal and professional challenges they are likely to encounter throughout the process and during the transition. Is your CEO mentoring leaders of the future?
Create a Written Executive Succession Plan
This document should detail how the organization’s officers are elected and replaced, how successors are to be chosen, and the respective roles of the CEO, the board, and the various board committees in the succession process. Emergency succession procedures, in the case of sudden death or vacancy, are also included. Agreeing on these elements before there is a need to implement them helps ensure an orderly, deliberate transition while avoiding uncertainty and destabilizing political maneuvering.
Conduct Regular, In-Depth Reviews
The entire board, together with a senior human resources executive, should review the succession plan at least once a year, including an examination of the relevant bylaws and succession procedures and a review of the baseline capabilities requirements for the next CEO—a working document that summarizes what these requirements would be if the search for a new CEO were held today.
To determine those requirements, the board should begin by examining the organization’s direction and strategy over a five to fifteen year time period, factoring in the impact of various scenarios such as how the organization will be affected by challenges including globalization, changing customer demographics, evolving competition and digitalization, or the risks and opportunities brought by changing climate and global health conditions. Looking at the impact of broad trends such as these helps ensure that the organization’s next leader will have the capabilities and experience necessary to respond to unfolding complex events across numerous fronts.
The board then distills these considerations into a set of required capabilities. Based on the organization’s situation and strategic direction; some capabilities will be deemed essential and others of secondary or little importance. – Shawn Cole, President
Where do CEO’s Come From?
CEO’s come from two primary sources: internal candidates who have been groomed as possible CEO successors, and external candidates who are recruited from a national pool of talented professionals. It is wise to keep both options open in order to maximize the success of CEO succession planning. The internal candidate pool is typically comprised of C-Suite candidates, COO, CCO, CLO, CFO, etc. The board should be briefed annually and have regular exposure to internal candidates through board presentations, field observations, and site visits.
Implementing the Plan:
Approximately one year before the planned transition, the full board should meet to implement the succession plan. The CEO competency list should be given a final review and revised as necessary. The board should then implement a thorough assessment of the finalist candidates, including:
In-depth competency-focused interviews that probe for the skills and talents essential for the role.
360° referencing that provides added insight from superiors, industry peers, colleagues and direct reports.
Online psychometric testing, interpreted by an in-house psychologist, which gives shape to intangible qualities.
Measure Internal Candidates Against their Peers at Other Organizations
This will ensure the organization is choosing the best CEO available, rather than merely the best choice from within its own ranks.
The customary approach is to turn to independent senior search consultants, who then identify the most appropriate candidates in the marketplace. This list often includes not only candidates from within the industry, but those from adjacent industries as well, to ensure that all of the best candidates are being considered. Based on this information and the many other data points which have been amassed during the assessment period, internal candidates and the external benchmark candidates are given numerical rankings across the various required competencies.
Once a final candidate has been selected, it is critical that a thorough transition plan be developed so that the new CEO has the benefit of a strong start. A solid transition spans a full year, and contains five phases.
Managing the CEO succession process is ultimately the board’s fiduciary responsibility to the organization. A regularly reviewed and closely followed succession plan is essential to successfully exercise that responsibility. The costs of shortchanging this process are easy to see when organizations are caught off-guard by events. The payoff is reflected in the organization’s momentum as it moves from one leader to the next. In addition, ongoing succession planning helps the board to be better informed and aligns the development of the senior management team with the strategic needs of the organization. Beyond its usefulness in risk mitigation, CEO succession planning contributes to the successful governance and management of the organization long before a successor is needed.
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