The CEO plays a significant role in leading an organisation and in determining it’s culture and success. Given the strategic importance of CEOs, Barry Bloch, Global Partner for Board and Executive Leadership, believes that appointing the right CEO is the most critical decision that a Board will make.
“CEOs have overarching impact on the strategic direction of an organisation, and on every strategic decision that it makes,” Barry explains. “Appointing a new CEO creates a fork in the road, and experience tells us that making the right decision at this juncture is fundamental for leading a business down the right strategic path.”
“Time and time again we’ve seen how poor CEO succession decisions have quickly led to significant brand damage and capital investment write-offs, often based on decisions made by CEOs during their first 100 days,” say Barry. “On the flip side, there are just as many examples of where outstanding CEO appointments and succession processes have led to complete business transformations and significant business growth.”
Having a rigorous, integrated, proactive and well-managed CEO succession process is essential for finding, appointing and embedding the right CEO. Here Barry shares best practice and some other considerations for Boards as they navigate this important function.
Five tips for successful CEO succession
1. Board ownership
For successful CEO succession the Board, not the outgoing CEO, must own this process. “Where we see the current CEO earmark their own successor or run the process, we almost always see failure,” says Barry. “This is because it’s difficult for outgoing CEOs to see the future CEO as different to them, rather than a continuation of their own leadership. And succession in the CEOs own image is a bias that unequivocally creates risk.”
2. Future focus
It is also important to remember that CEO succession isn’t a continuation of the way things have always been done, so it can’t simply be a copy and paste exercise. “CEO succession must deliver on future business needs, future business strategy and help to achieve future business success,” says Barry. “The word succession is there for a reason, and this process provides an opportunity to redefine the leadership of an organisation. Remember, you are appointing the next CEO to lead the next phase for your organisation.”
3. Do it right, not rushed
According to Barry, successful CEO successions typically take upwards of 18 months, and only good things can ever come from having a long view of this process. “There are times when this will be reactive, but planning ahead will always achieve better outcomes,” he says.
“Externally, having a long view of CEO succession means mapping and managing the market as a proactive talent management exercise, rather than as a reactive search,” Barry continues. “It also requires a deep understanding of the type of leadership you need internally to deliver on future strategy, and to steer an organisation where it needs to go.”
4. Developing and retaining unsuccessful internal candidates
Experience tells us that by effectively managing CEO succession, businesses can improve the retention of unsuccessful internal candidates from approximately 1 in 5, to 4 in 5. “Investing in developing internal talent and running a genuine and transparent CEO succession process will not only lead to a more successful appointment, it will also improve retention, help to grow your executive leadership team and lift your organisation’s performance,” Barry says.
Barry also urges Boards to focus on assessing against future CEO success criteria rather than current performance, and to create stretch opportunities to help executives grow. “Often the candidate that you don’t think is suitable will shine, so don’t write off your leadership team too quickly,” he says. “You must also remember that on-the-job learning delivers the vast majority of growth, so create opportunities for executives to step outside of their comfort zone, then see who steps up to adapt and perform.”
5. Don’t overlook onboarding
The CEO succession process doesn’t end once an appointment has been made. To achieve a successful transfer into this role, businesses must invest in onboarding. “It doesn’t matter how well your successor knows the organisation they are stepping up in or what success they have achieved externally, all CEO appointments face entirely new and unique landscapes when they assume this role,” Barry says. “Regardless of what an individual brings in skill and capability, to be successful as CEO they need coaching and mentoring to align what they bring with what the business needs.”
Manage CEO succession in-house, or partner with a specialist?
Although the Chair of the Remuneration and Nomination Committee is typically accountable for delivering the CEO succession process to the Board, quite often specialist support is needed to guide and inform this process.
“The value in working with a specialist lies in the independence, experience and accountability that they bring,” says Barry. “There are also many different factors to consider and parts to deliver in CEO succession, and very rarely do organisations have someone with the skill, experience, network and time to deliver on all of this internally.”
“Having been involved in many CEO successions over the last 20 years as either an adviser or as the client, I know that great value comes from partnering with an external specialist, and in bringing the overarching succession process together with the executive search firm,” Barry reflects. “Having board and executive leadership services collaborating with the search process adds considerable value, delivering better cultural alignment, better accountability and ultimately a better result.”