The Path to the Top
Russell Reynolds Associates consultant Hans Roth wrote a bylined article for Construction Today titled, "The Path to the Top." In it, he cites Russell Reynolds Associates research and gives insights into CEO succession in the engineering and construction industries. The following is an excerpt from the article.
A forward-thinking, disciplined chief executive officer (CEO) succession plan can maintain and drive a company’s momentum and provide significant protection against the many risks associated with a change of company leadership. The best-in-class boards of directors have a robust and ongoing succession plan and process in place which involves long time horizons, rigorous assessment and thoughtful individual development plans.
Such comprehensive measures help but do not entirely safeguard from the many pitfalls in getting CEO succession right. One core concern, for example, is that many boards do not fully think through candidates’ experiences and specific competencies in light of the company’s strategy, which needs regular updating as the business evolves. The criteria for a new CEO should focus on both the necessary experiences (skills and past accomplishments) and leadership qualities (inherent traits of leaders) required to implement a company’s long-term strategy.
Having a long-term succession plan is important, but it’s even more critical to have an ongoing succession process in place that allows a board to make quick and informed decisions in the event of a crisis. Therefore, succession planning needs to begin the day after a new CEO starts and should be a recurring topic on the board agenda.
Executive search firm Russell Reynolds Associates analyzed the profile of CEOs from 26 leading engineering and construction companies globally. Its data shows that internally appointed CEOs in this industry most often enter the position from a division head role, which is a training ground for the set of skills desired in a CEO. Another common preceding role is that of chief operating officer.
The majority (68 percent) of CEO appointments in the analysis were internal successors to the role, meaning that knowledge of the organization and the industry is valued. About a third entered the CEO position from outside the company, and, out of those, a fifth joined their current role from a CEO seat at a different company. The smaller proportion of external CEO appointments reflects the widely held perception that externals pose outsized risks when it comes to company culture and other related factors.
However, the firm predicts that the changes in the market and the aging population of next-generation leaders within the industry itself will pressure engineering and construction companies to drive the need to look outside the sector to fill specific gaps in their executive team.
In addition, the analysis shows that more than 80 percent of all the CEOs in the sample have had significant engineering and construction experience, which confirms the often taken-for-granted assumption that comprehensive experience in engineering and/or construction is a prerequisite to success, though it depends on the company’s strategy and position. Almost 60 percent of externally appointed CEOs were hired from outside the industry, most frequently from adjacent industrial sectors.
To read the full article, click here.