CEO Succession Plans in a Crisis Era
The Harvard Law School Forum on Corporate Governance published the article, “CEO Succession Plans in a Crisis Era,” written by Russell Reynolds Associates Consultants Rusty O’Kelley, Margot McShane and Justus O’Brien, based on our paper, “Is Your CEO Succession Plan Crisis-Era Ready?” The article is excerpted below.
CEO succession planning is one of the most important responsibilities of a corporate board, and one of the most challenging. In the best of circumstances, directors are working thoughtfully to anticipate the future, develop potential successor candidates over several years, and to ultimately have one of them step into the top spot. In emergencies or other unexpected circumstances, there is a great sense of uncertainty as to whether the board is selecting the best leader, or just the best leader available right now. It is an expensive question to answer. By one estimate, replacing a ill-chosen or short-tenured CEO leads to a loss of $1.7 billion in shareholder value in addition to a loss of organizational confidence and momentum.
While there are many matters competing for the board’s attention right now, it is highly advisable that CEO succession planning be high on the board’s agenda, even if the incumbent CEO is in good standing. The risk of an unanticipated CEO transition is heightened right now due to the exceptional challenge of leading in this time, the emergence of new expectations and requirements for the organization, the increased stress all leaders are experiencing, and health risks from the virus. And, given rapidly changing market and competitive dynamics, it is highly likely that a company’s existing succession plan may no longer put forth the best person for the job, given that the specification was written during better times, and the future looks to be increasingly dynamic and difficult.
These are the six questions boards should be asking:
Is our emergency successor still right for this environment? A documented plan for emergency CEO succession is a necessary (and, often, regulatory) requirement. Beyond a “name in the envelope,” leading companies look at different successors that correspond to a range of potential emergency scenarios. As boards work to ensure continued alignment on the emergency plan, they should ask the hard questions of whether designated emergency successors are as qualified and relevant today they were pre-crisis. Where the question invites uncertainty, boards should act to ensure that the designated emergency successors’ skillsets and mindsets are matched to the go-forward environment.
Is our CEO role specification still right? The best companies approach succession planning as a dynamic process, highly responsive to shifts in the environment and company strategy. Material changes in strategy may require the board to reexamine the relevance of the specification for both the current CEO and future CEO roles. As the company transitions to an post-pandemic existence, and as leaders do their best to predict an unpredictable future, what are the critical skills, attributes, and abilities for the CEO? How do those differ from what you thought mattered the most before this crisis?
Urgent for Some, Critical for All
One of the reasons that many boards aren’t very focused on succession planning right now is that they are so consumed in the moment, and a CEO succession or transition seems like a far off need that can be addressed at some later time. In normal circumstances, we recommend to our clients that they begin long term CEO succession planning five or so years away from the potential transition. This provides ample time for multiple internal candidates to be rotated through several senior assignments, in the process developing a multitude of business and leadership attributes they could then bring to the CEO role. But the current situation is different. The reality is that there are many scenarios that might require a CEO transition much sooner.
What Matters Most
We have spent significant time over the past couple of months talking to executives, board members, and our internal experts to identify the critical leadership traits CEOs and other leaders need in a time like this. While the list will vary by industry and organization, we believe there are six imperatives that every leader now needs:
Bravery: Executives need to be courageous in thinking independently and making very difficult decisions. They know they are not bystanders to what is happening right now, but highly visible and active leaders. They are willing to make personal sacrifices such as taking a pay cut, or make smart corporate investments when being pressured not to. They need a sense of ownership and self-efficacy, with a confident mindset that they can act and make decisions that will improve outcomes. With these in place, they will need to be resilient, able to withstand and work through the problems they face, as well as the resulting public scrutiny.
Authenticity and empathy: Executives must display authenticity and empathy in all that they do, and be a context-sensing communicator who is close to pitch-perfect in their communications with different audiences and in varying situations. They know that everything they say and do is a form of communication to those around them, and as such, they must embody the organization’s values and culture fully, as their actions will be analyzed as if they were under a microscope. In challenging times, the ability to show openness and vulnerability is critical for a leader to build rapport with others. Transparency is essential.
While there are a number of things boards must do related to CEO succession planning, there are three concrete first steps to take:
- Review your leadership and experiential criteria
- Ensure your emergency plan is more than just a single name in an envelope
- Do now what you normally would put off for later
While there are many things on the boardroom agenda today, directors must make the time to put CEO succession planning front and center. The tremendous loss of shareholder value from an unplanned transition, combined with the increased risk of CEO illness or burnout right now, make this topic more important than ever.
To read the full article, click here.