Succeeding with Succession

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April 19, 2022
12 min read
Executive Summary
Demystifying CEO succession planning and exploring how (and why) companies should consider CEO Succession for successful CEO transitions.
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The challenge you face—and the case for CEO succession planning

The question of “who takes up the mantle next?” is a crucial consideration for boards today.

But CEO succession planning is more than a changing of the guard. Done right, it becomes a powerful catalyst for business transformation and growth. At its best it:

Ensures the success of your next CEO

Aligns current leadership with the desired company culture

Helps you optimize business performance

Prevents any unhealthy competition for the position and builds internal confidence in the process

Helps to create clear internal pathways to the top

Helps to surface unlikely (but ideal) candidates

Strengthens the leadership team through individualized development plans

Reduces risk and ensures that future leaders arrive committed, knowledgeable, and culturally connected to the company

Stabilizes the leadership team before, during, and after the transition

Here, we explore everything you need to know about succeeding with CEO succession.

We answer some of the most commonly asked questions and take a closer look at what makes a CEO succession planning process a success.

First, the basics. What is CEO succession planning? Who does it involve? And why don’t more companies already have succession plans in place?

 

 

 

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The nuts and bolts of CEO succession planning

What is a CEO succession plan?

A CEO succession plan is a strategy to determine who can replace a current CEO once they resign or retire (and when those future leaders will be ready for the role).

Having a solid plan in place is crucial for continuity—it maintains your company’s profitability, values, longevity and reputation. 

But it’s a very nuanced process. There are a lot of factors to consider, such as how to:

  • Define and align the board on a detailed profile of what traits they are actually looking for in their future leader
  • Find suitable candidates and narrow down the selection
  • Select the best choice for the company’s future 
  • Prepare chosen candidates for the role
  • Ensure a smooth onboarding and monitoring progress
  • Sustain momentum around the program into the long term
  • Maintain good relationships with the current CEO and other stakeholders
  • Avoid starting a “horse race” prematurely
  • Ensure unsuccessful internal candidates are retained

 

The difference between CEO succession and CEO search

Search is a component of succession planning. A successful succession planning process will include a search to identify potential candidates and evaluate their suitability.

However, “CEO search,” as used the way boards refer to it, relates directly to an emergency situation, such as the sudden or unexpected departure of the incumbent CEO. That frantic search for a suitable replacement—often external, often among current C-level executives from other companies—is what CEO search tends to look like in the real world. And it can have very varied results.

Proper CEO succession planning is vital for boards looking to avoid risk and maximize CEO efficacy, business profitability, and values alignment.

On the other hand, CEO succession refers to a more measured, purposeful transition of power. It includes a default to the ongoing development of a number of viable candidates, a careful selection, and ongoing support and pastoral care throughout the process. The succession process will also include a rigorous ongoing refinement of the requirements of the next CEO, rather than just a presumed continuance of the current.

Importantly, it’s not about the length of time (though the more time you allow for succession planning, the better and more effective it will be). It’s about premeditation and investment into development.

Done right, CEO succession helps boards avoid risk and maximize CEO efficacy, business profitability, and values alignment.

 

 

 

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What is involved in the CEO succession planning process?

No two companies are alike, and so no two succession plans will be identical. But there are some common foundations in all CEO succession plans.

Leadership advisory firms, like ours, help companies throughout the succession process, from planning, setup and implementation, to candidate selection and curation, leadership training, onboarding, and ongoing advice and support.

Who is responsible for CEO succession planning and who should be involved in the process?

The company’s chair and board of directors is broadly responsible for the hiring of a new CEO. They are the driving force behind CEO succession planning. It is their job to define what good looks like, select the candidates, and oversee the transition of power when the time comes.

The current sitting CEO has a clear role to play too. It is their job to ensure that the conditions are in place for succession. They need to ensure that internal candidates (once shortlisted) are developed and given the exposure they need by being assigned the right roles. It is the CEO’s job to ensure that their successor will be ready when the time comes. The CEO may also need to act as a mentor to the CHRO, who will be responsible for monitoring the candidates’ development plans.

 

 

 

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Setting up for Success: A Chair´s Story of Succession

A look into the process of CEO succession planning from the point of view of a Chair.

 

Why companies often overlook succession planning

Many companies skip succession planning because, frankly, it's difficult. In many ways, CEO Succession is the Everest of leadership planning, requiring years of experience and preparation in order to go well.

Some boards also mistakenly take the view that succession planning is a management responsibility—something to be reviewed periodically rather than owned. In actuality though, CEO succession planning is very much a board responsibility that calls for collaboration with the management team.

CEO succession is the Everest of leadership planning.

The challenges of CEO succession planning

It’s a long-term process that requires a lot of planning and involves a lot of (sometimes uncomfortable) questions around performance, values, and future plans.

It’s mired in sensitivities—many sitting CEOs chafe at the idea of their board searching for their ‘replacement’. And, handled incorrectly, it could spark a ‘horse race’ between potential candidates.

It requires buy-in from a lot of different stakeholders. For some companies, it’d be easier to wrangle an oiled-up eel.

It’s hard to rehearse. Most people don’t have experience in hiring CEOs. Succession processes don’t happen often—most board members will only have been part of one or two CEO transitions at most.

It can be difficult to start—especially when you’re part-way through a current CEO’s tenure, as it can raise questions about the CEO’s job security.

The perception of risks (as mentioned above) and the lack of immediate impetus can also make it feel easier to choose not to do it.

Finally, it’s work that doesn’t have an immediately tangible pay-off. The concrete results of successful CEO succession planning will (hopefully) not be seen for a long time—and it could be seen as a distraction from duty for those involved. That lack of immediacy (and potential disruption) can cause succession planning to fall to company backburners.

 

 

 

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The top five CEO succession planning best practices

01 Start the process of succession planning the moment you hire a new CEO

The best time to start thinking about finding your next CEO is immediately after you hire your current one.

That’s because CEO succession is a long-term undertaking. It’s not just about finding a single suitable person—it’s about setting up guidelines, processes, search, training, mentorship and monitoring that will provide you with a sustainable pipeline of leadership prospects. For this, the board needs to be aligned on a forward-looking spec which will inform the selection and development of candidates.

 

02 Focus on internal candidates—but don’t discount strong externals

Internal candidates are the backbone of strong succession planning. Around 70% of current FTSE 100 CEOs were internal appointments (having joined within three years before appointment). Your succession planning process should highlight a conveyor belt of fantastic internal talent that will be able to sustain your company for years to come.

CEO succession planning requires know-how, sensitivity, a clear vision, and stakeholder alignment.

But you shouldn’t rule out external candidates completely. While internal candidates tend to be stronger in terms of specialized industry knowledge, culture fit and values, external candidates can offer different skill sets and a fresh perspective. In fact, it is critical—and part of the board’s responsibility—to assess internal candidates against best-in-class externals. Increasingly, boards are expected to consider viable external candidates as part of their due diligence before affirming any internal candidates. 

The key is to identify the best leader for the business—both at its particular stage and for the future direction of the company.

 

 

 

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03 Don’t shy away from addressing sensitivities

Nobody wants to think about the person who will inevitably replace them in their role—but, for the wellbeing of the company, the question has to be asked. There are ways to do this sensitively, so as not to alienate the incumbent CEO.

The best succession plans are ones where boards and sitting CEOs are able to come together constructively to plan, measure performance, set projections for the future and mentor future leadership candidates.

 

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04 Set your CEO succession process up for success

Establish clear timeframes, with short-term milestones and long-term goals
It’s important to set expectations with clear timeframes and targets. You should expect to invest five years on average to train internal candidates. Add in search time and onboarding, and each CEO succession process cycle could take anywhere from X to X years, from beginning to onboarding. (Which is why we recommend starting succession planning as soon as a new CEO is appointed.)

Set clear criteria that match your company’s current—and future—needs
Early on, you need to ensure there is alignment between all key stakeholders and decision makers on what the next leader should look like. Create a Leader Profile: a blueprint of what skills the next CEO will need and the traits they need to have.

Devise a thorough interview and screening process
A good interview process will be able to determine which candidates (out of potentially hundreds) have the potential to be a strong leader of the future.

Your selection process must be able to test all candidates equally against the same criteria, covering temperament, mindset, relevant knowledge, and other relevant areas. Generally, we recommend focusing more on skills and traits rather than existing C-level experience.

You’ll also want a manner of testing candidates in-situ. Hypotheticals are good up to a point, but you’ll need a way to test how people act under stressful conditions too—without actually having a crisis in progress.

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Create development and progression plans for candidates not chosen for the CEO path
Not everyone who you consider for the CEO role will be successful. But that doesn’t mean that they aren’t fantastic talent that deserves to be developed and given solid progression opportunities nonetheless. To prevent your internal talent from going to competitors, ensure you build parallel development paths for the candidates not chosen for the CEO succession path, so that they feel supported, appreciated, and like they have clear opportunities for success. And even if they’re not ready for immediate succession, they may still turn into strong candidates for future succession cycles.

Build development paths for unsuccessful CEO candidates—whether for future CEO succession processes, or for other leadership roles.

Safeguard the business with a crisis plan for emergency situations
Succession plans are often developed with a specific timeline in mind; but sometimes emergency situations occur, and a CEO needs to be replaced ahead of schedule.  As an ongoing, living effort, the succession planning process is invaluable for having materials ready and candidates identified in those situations, and for having a common language and mindset among directors about what matters most for your company's next leader.

Continuously monitor and improve
Even after the new CEO is selected and onboarded, there’s still work to be done. The board will need to establish clear metrics to measure the new CEO’s performance over their first year—to gauge their efficacy and to identify potential issues.

They will also need to conduct a thorough post-mortem of the succession process itself, to note what went well, what could be improved, and whether anything in the Leader Profile needs to be amended or updated going forward.

 

 

 

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05 Partner with an experienced leadership and search advisory firm

CEO recruitment isn’t an everyday occurrence. Even the most experienced of board members will only have gone through two or three CEO successions over the course of their careers. At the same time, hiring a CEO is probably the most pivotal decision you face as a board—and it has lasting implications for your company’s performance and its place in the world.

Engaging an experienced partner to accompany you through the process can set you up for success and ensure you not only find the best fit for now—but that your company is ready for the future.

 

 

 

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Get started with CEO succession today

Find out how you can ready your business for the future