CEO Succession: The Hidden Costs of Shortcuts

Shortcuts can be so appealing. They promise an earlier arrival, reduced effort, or less expenditure for a similar outcome. We have all taken them at one point or another. And sometimes they seem to live up to their appeal. The problem is that it is difficult to foresee the risks of these forays until they suddenly emerge. Such is the case with CEO succession planning.

At RHR, we strongly believe that a critical step in the CEO succession process is to ensure alignment among the board members regarding the company’s strategy and what this future path will require in terms of the specific experience and talents in the next CEO. Ideally this is done in partnership with the current CEO, but it is ultimately the board’s responsibility. This process requires time, candor, and the willingness to surface conflicting agendas, perspectives, and risk tolerances. Not all boards take this step, and not all of their successions go awry. But, sometimes they do.

What are the benefits to creating a leadership profile for the CEO role?
Focusing on the future reduces the appeal of a clone. A successful current CEO can appear to be a life-size blueprint for what is needed in the successor. However, his or her accomplishments have likely propelled the company into a new landscape of opportunities and challenges that will require a different constellation of skills in the future. On the flip side, a struggling CEO probably lacks experience or abilities in some key areas, but likely possesses skills in other areas that may need to be replicated. In such cases, the board must take care not to swing the pendulum too far in the other direction.

“the CEO profile should be updated at least yearly to ensure that it still represents the current view of the future and the leadership needs.”

It avoids polarization among board members. When boards skip the step of creating a touchstone and move into identifying and evaluating candidates, directors can polarize around the individuals they are backing. And without starting with the strategy to guide the prioritization of leadership requirements, individual directors can also stack the deck by listing “required” attributes that happen to make their candidate stand out. Discussions become heated marketing campaigns and are more political than objective or constructive. Directors can have difficulty articulating why they prefer one candidate versus another, or may oppose an internal candidate based on observations made years before which may or may not be currently valid.

It enables the board to assess what matters. The specific CEO profile can serve as a powerful cryptography tool to decode the massive amount of candidate data that will likely be available and home in on what is really relevant for each CEO candidate, and the implications for the company. It can help directors avoid becoming distracted by impressive, but less relevant achievements on a resume and highlight gaps in experience or skills or leadership style and where more information is needed.

It helps the board to mitigate the risks. No one is perfect, and no candidate is going to be a perfect match on all of the criteria. When a board has had the vital discussions regarding where the company is headed and what the next leader will need to help realize that future, the foundation has been set to discuss what gaps can be addressed through leveraging the senior team or the board, or ongoing development. This will also help identify which gaps represent too great a risk or are realistically not amenable to change.

It helps add discipline and transparency to the succession process. This profile enables candid conversations with internal talent, highlighting what will be needed and where they may need to grow and develop. The objective and transparent approach helps increase the odds that those involved view the process as fair and may reduce the likelihood of departures by others on the senior team who are not eventually selected, or at least delay the loss of talented executives who recognize that the experiences and development they are receiving will increase their general viability as CEO candidates.

CEO succession as a best practice is a continuous process linked to the organization’s overall succession planning for senior roles. As part of this evergreen approach, the CEO profile should be updated at least yearly to ensure that it still represents the current view of the future and the leadership needs. Taking the time to ensure the board is aligned on the company’s strategy and to the specific leadership skills and experience that will help realize that future is not always an obvious key step in CEO succession. However, as more directors experience the benefits, they will likely agree that avoiding this is not a shortcut worth taking.