CEO succession planning for public and private companies is one of a CEO’s and boards most important responsibilities. It is extremely risky to let CEO succession planning slide. Not having somebody ready when the CEO decides to leave, is forced out or dies, can put any company into a leadership crisis or result in the forced sale of the company. Most boards say they understand the importance of CEO succession planning, but their actions tell a different story.
One study by Stanford University’s Institute for Executive Education showed that only 20% of all the companies they surveyed had an adequate pool of candidates ready to become CEO. The “readiness” factor fell to 10% for small- and medium-sized companies. Let’s look at six key directives to make CEO succession planning and the actual transition go much more smoothly.
1. Don’t wait for a vacancy to begin the search. The search for a CEO successor should begin the day a new CEO starts. This applies to small, medium and large companies. Today’s turbulent markets, rapidly changing technology, new regulations, and global competition can result in a need for a quick change.
2. Don’t look in the rear view mirror. Most companies have the tendency to select successors who have behaviors and attributes similar to the current and past CEOs. However, the best candidate should be experienced and aligned with the company’s future business strategy and cultural choice needs, not the present or the past. For example, one company that had been slow to improve its internal technologies believed it was now necessary to become a technology leader. They looked for a successor with strong skills and a strong track record in new product development. In another, e-commerce was rapidly becoming the fastest future growth approach of choice, which meant that someone with an appropriate grasp of the role of IT in development and marketing of product lines was needed as the next CEO.
3. Look one or two levels below the CEO’s current direct reports for viable CEO candidates. High-performing new product division executives from acquisitions, if they haven’t left the company, are often excellent choices who intimately know the details of the business. And don’t fall into the rut of only choosing candidates from one function, such as operations or production. Executives from engineering, (technical) marketing and sales should have equal opportunities to be CEO if they fit the future needs of the company’s growth and needed culture.
4. Evaluate the soft people skills of CEO candidates. Because CEOs need to work with different types of specialists within their companies and business cultures in other countries, look for executives with humility, empathy, cosmopolitanism, grit, and respect for all employees at all levels and in many types of jobs. Beware of arrogant, elite and big egos without sufficient empathy to understand and motivate today’s knowledge workers. Their personal life style often provides clues of their workplace values and behavior. People who lead with fear and intimidation should be avoided in all CEO succession planning.
5. Perform a thorough background check. Verify all academic credentials and past relationships with co-workers. Inquire and learn how well the candidate has dealt with personal or business adversity in the past. Determine what they read on a wide range of topics and determine their views on life-long continuing education. Face to face interviews with current and former co-workers they worked with on large projects can be invaluable.
6. Look for clues that indicate visionary thinking. Do they enthusiastically speak of new and emerging trends, new product and process technology and likely new regulations? Are they fairly cosmopolitan or local in their
thinking? What do they read to spot early warning signals? And finally, are they considered to be simply managers with titles or are they truly leaders that people follow?
Whether replacing a dismissed CEO or planning to replace a CEO who is retiring, the same principles apply. Every board member should understand the need for innovation and organic growth in today’s global economy and become well-versed in what characteristics are required in the leaders needed to bring them about.