Keep Three Apples Ready
A great board of directors makes a continuous effort to learn to know the next CEO of the company, says Clarke Murphy, the CEO of the consulting firm Russell Reynolds.
Who will be the next CEO?
“A great board of directors keeps this in mind all the time,” says Clarke Murphy.
“A board should always have three suitable CEO candidates growing within its company,” says Murphy, who visited Finland this fall.
Russell Reynolds is still involved in traditional senior level leadership head hunting, although a growing sector of consultancy business is nowadays succession planning for large companies. A consultant will assist boards in selection and training of the next possible CEO from within the company.
“It is only advisable to recruit a new CEO from outside if the company wants to change their business culture. If the company possesses a strong culture, it is worth building on,” says Murphy.
Clarke Murphy and Juha-Pekka Ahtikari, who is the director of Russell Reynolds’ Finnish operations, emphasize the fact that succession planning is a continuous process, not a single plan recorded on a piece of paper to then be forgotten.
“The CEO and board of directors will together select a few candidates. Each of them will have a development plan including for example their weaknesses that can be worked on to improve.” The process will be repeated regularly. This is why it is so important for the board of directors of a company not just to meet with their CEO but with other leaders as well on a regular basis.
Regardless of the industry, global competition is tough today. Shareholders require two-digit earnings on their investments despite business conditions. There is no lack of capital in the world today, but talents and especially good leaders only come in few.
“In the United States, The Securities and Exchange Commission (SEC) stated already about 4 years ago that succession planning has become one of the most important priorities for shareholders,” says Murphy.
As an example, the country’s largest employee pension fund, Calpers (California Public Employees’ Pension Fund), is one of those owners that was actively involved in the leadership changes taking place at the investment bank JP Morgan.
"HUMAN RELATIONSHIPS ARE COMPLICATED"
What is the most common mistake a board of directors makes in their selection of a new CEO?
“A board selects a CEO too quickly without sufficient knowledge. Or also a board selects a mirror image of the current CEO as their new CEO instead of looking for a person that the company will need in three to five years,” says Murphy.
Mistakes happen also because a board consists of human beings.
“Human relationships are complicated. It could be that a board does not want to disappoint someone,” says Murphy.
It is especially important for Finnish firms with global operations to cultivate new leaders inside the company since it can be difficult to recruit top foreign names to the remotely located Finland.
Is it harder to find a great CEO today than before?
“Yes, it is. Skills, such as excellent operational skills and strategic execution, for example supply chain management, are now important. Strategic skills are taken for granted,” says Murphy.
Even being an operative genius is not enough for a CEO if he or she is not able to act convincingly.
“Today’s CEO must possess excellent communication skills. Nothing else can compensate this as bloggers and twitters of the world monitor your business 24/7. You have to be ready to react on any issue at a moment’s notice,” says Murphy.