One of the things I’m proudest of in my career is the highly successful CEO transition we were able to orchestrate when I stepped down as CEO of Best Buy. It happened smoothly, without the company missing a beat. My successor Corie Barry was able to forge ahead, accelerate the company’s growth strategy, and effectively deal with the pandemic—one of the most challenging, most multi-facetted crises the world has ever experienced—just nine months into her tenure.
While CEO succession is generally recognized as one of the most important keys to the long-term success of any company, the topic isn’t well-researched or documented. In addition, if you’re the CEO and/or owner of your company, you have typically had little to no practice with making a CEO transition.
When planning my own succession, I interviewed a number of recently retired CEOs on this topic, and had conversations with some of the world’s leading search firms who typically assist companies in this process. I also kept in mind my own trials and errors during my career. My aim is to share these insights so that others in this position have a road map for how to do it successfully.
A focus on succession planning can feel counterproductive, for at least four reasons. First, early on in a CEO’s tenure, it can appear to be irrelevant. Once you get past that point, it feels a little bit like shooting in the dark, as you don’t know exactly when you’ll need to make the transition. Third, the process can put an emphasis on the gaps in potential candidates in an unproductive and sometimes emotional way. And finally, it’s a zero-sum game, where there’s only one winner and several potential losers. Not so good.
My research and experience lead to this conclusion: success comes from careful planning and execution over the entire tenure of the outgoing CEO—with a focus on “executive development” rather than “succession.” This requires a three-step approach typically executed over 5-10 years:
- Step 1 – Build a strong foundation, starting early on and staying with it;
- Step 2 – Run an effective CEO selection process when the time comes; and
- Step 3 – Carefully implement the transition.
Within these three phases, there are ten actions that are key to the success of the succession.
STEP 1: BUILD A STRONG FOUNDATION
While your own succession may seem very far away in your early years as an owner/CEO, there are four things you can and should do to lay the groundwork for when the time comes.
- Focus on executive development, not succession.
In 2016 we had our annual in-depth talent review with our Board, which included a discussion on potential successors for the CEO role. I found that discussion rather frustrating. We were debating whether Suzy or Jack could be potential successors, with rather subjective points of view being exchanged, gaps being highlighted, in a context where I and the Board saw my succession years away. It didn’t feel like a very productive conversation.
Then one of our Board members brought up the idea of using an executive development firm to help with the development of the two or three potential successors we had identified. Instead, I decided to use their services with every member of the executive team, self included. The focus would be on leadership growth, and how all of us could function more effectively as a leadership team, rather than helping just two or three individuals prepare for some distant, abstract event.
It worked well because all of us needed to grow as leaders, the entire team benefited, and we avoided creating false or premature expectations. The mental shift from succession planning to executive development was liberating for everyone. And while the focus on succession had shifted, we could still see, as a board, which team members were progressing.
- Develop a strong board/committee chairs.
Having a strong board has been crucial to the success of the transformation at Best Buy. A strong board can give “super-human” powers to the management team by bringing skills relevant to the tasks at hand, including for CEO succession planning.
Very early on in my tenure as CEO, I started to work with our chair, Hatim Tyabji, and Kathy Higgins-Victor, our head of nominating and governance, on building the best possible board of directors for Best Buy. We wanted a board with a diverse, relevant and current set of skills, from experience with digital transformations and technology services, to broad business and organizational leadership skills. We then paid specific attention to making sure we had highly qualified chairs for, and the right skills in, each of the board’s committees. We ended up with an amazingly competent, highly engaged and diverse board, including a majority of women and three black directors.
This proved to be essential to the resurgence of the company in general, and to everything related to people and people development, including CEO succession planning. For example, the fact that our head of nominating and governance had had vast experience with this topic, as a former CHRO and as a consultant in the field, was incredibly helpful. The fact that we had several recently retired CEOs on the board and on the various committees added a specific type of wisdom and relevant experience when the time came to administer the succession process.
- Develop external benchmarks over time.
Most of the time, the board ends up choosing the new CEO from within. That was the case with my successor Corie. But it’s a key responsibility of the board to ensure that the chosen candidate is the best possible candidate, not just a convenient one. Looking for or evaluating potential external alternatives at the time of the actual succession decision can be a late and risky proposition. A better approach is for the CEO—and certain members of the board—to develop a list of potential external candidates, and to get to know them over time. This way, at the time of the decision, the board can compare internal and external alternatives without necessarily having to reach out to external candidates at a delicate time.
- Avoid a preset timeline and horse race.
I am not a fan of preset timelines, even though they have sometimes been used, as was the case with the highly publicized succession of Jack Welsh leading to the appointment of Jeff Immelt in 2001. A horse race like that can create a politicized environment, undermine collaboration, and increase the risk of losing valuable talent.
STEP 2: RUN AN EFFECTIVE CEO SELECTION PROCESS
I had always felt that my life was not tied to being the CEO of a company and that I was just asked, for a period of time, to be the custodian of that company, responsible for leaving it in a better state than when I had started. Late in 2018, I began to reflect on the right time for me to pass the baton to a next generation of leaders. Several reasons ultimately led me to want to do that. Some were professional: we had accomplished what I had set to accomplish when I took the job, I felt that the team we had developed was ready to take over, and I felt it was important for the company to have a team ready to lead with a long-term focus. In addition, I was ready to start a new chapter in my life, after 20 years or so being a CEO.
This triggered the process to select the next CEO of the company. Here are three things you can do to ensure the effectiveness of the process:
- Form a strong committee and staff it with external help.
Properly structuring and resourcing the process is important. Our first step was to appoint a committee of the board in charge on conducting and leading the process. Ours had all the members of the Nominating and Governance committee as well as the members of Compensation and Human Resources committee. We wanted the combined skills of this group to do the work. Also, while the responsibility of the selection of the next CEO is ultimately the responsibility of the full board, we felt that appointing a committee to do the bulk of the work was best.
The committee was supported by two firms: a firm with great expertise in succession management that had worked extensively with the board over the last several years on board recruiting, and the executive talent development firm we had been working with since 2016.
A debatable and sensitive question is the role the exiting CEO should play in this process. At one extreme, should the CEO orchestrate and lead the process? At the other extreme, should the exiting CEO be left out? My personal sense is that the CEO should be involved, e.g., provide input to the committee, but not lead or drive the process. While the exiting CEO may know the potential candidates best, and is likely to have a strong, well informed point of view, having the committee chair lead the process is a good way to ensure that all voices are heard and that the process is conducted in an objective fashion.
Another important consideration has to do with gender. According to Sally Helgesen, author of How Women Rise: Break the 12 Habits Holding You Back, women tend to react differently to promotion opportunities. Typically, when men are 80% ready for a promotion, they will happily raise their hand for the next available opportunity, whereas when women are 125% ready, they may be reluctant to raise their hand. Addressing this discrepancy requires either the CEO or select board members to speak directly with potential female candidates and have an honest and open conversation with them about their reluctance to apply for the job.
- Perform a formal assessment.
Even though you may feel you know the candidates well, now is the time to perform a formal, objective assessment of the candidates. The first step will naturally be to develop forward-looking criteria linked to the strategy. You are obviously recruiting someone to lead the company into the future, not simply managing the present. In other words, “what got you here won’t get you there,” to quote Marshall Goldsmith’s best-selling book. The second step will be to have the candidates be assessed by the third-party firms supporting the committee, inclusive of benchmarking their current abilities and assessing their potential.
- Ask the candidates to present their thoughts to the committee.
This provides the opportunity for the committee to get to know the candidates through a different lens, understand what they have in mind, and begin building the relationship between the board and the future CEO (I personally like asking the candidates to use a memo to put their thoughts together). It is helpful to not have the exiting CEO involved at this stage to avoid any self-consciousness on the part of the candidates.
Then, the committee can formulate its recommendation to the full board for approval. Depending on the familiarity of the full board with the preferred candidate and other circumstances, the board may have the preferred candidate meet with the board at this stage and allow them to answer any question the board may have.
STEP 3: SUCCESSFULLY IMPLEMENT TRANSITION
At this stage, the board has a preferred candidate, but the work is far from over. Three key tasks remain. You need to:
- Effectively manage the communication of the decision to the candidates and ensure the retention of key players.
Communicating and finalizing details with the selected candidate is typically easy. Effectively communicating with the other candidate(s) does not always get the same attention. There is also the generally accepted view that candidates who have been passed over will or should leave. I have a different perspective, as they are typically individuals with extraordinary talent and can contribute to the future. Also, it’s not always obvious that they actually want the CEO job or that they are ready to be a CEO at this stage. Paying special attention to this is therefore not only human but also smart. Communication can best be handled by a combination of the future CEO who can talk about the future, and select board members and the exiting CEO who can share their wisdom and support.
- Craft an announcement strategy tailored to the situation.
Each CEO succession is unique. So should the communication strategy, which means tailoring it to the unique circumstances. In the case of my transition to Corie Barry, we chose to emphasize a message of continuity (« Best Buy Evolves Leadership Roles as Part of Succession Planning Process ») to minimize potential disruptions, internally and externally. And we carefully managed the internal communication through the appropriate series of internal events and demonstrations of mutual support. This was a very different positioning compared to the communication that took place when I became CEO of the company back in 2012, when the announcement emphasized my turnaround expertise.
- Design successful transition/onboarding for the new CEO.
The specifics here are largely dependent on whether the new CEO is coming from the outside or from within. You might ask, what role, if any should the exiting CEO have and for how long? First, the decision of whether to have the exiting CEO continue playing a role should be made by the new CEO with input from the Board. The exiting CEO should serve at the pleasure of the new one. Second, if the exiting CEO becomes Executive Chairman, his or her role has to be clearly articulated with a focus on supporting the new CEO. My suggestion—and what I did at Best Buy—is that the exiting CEO/new Executive Chairman should remain in the background for a limited period of time, i.e., not to exceed 6-18 months. Exhibit 1 outlines how Corie and I defined my role as executive chairman.
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Making sure the company has the right leader may be the most important factor in driving the success of a company. The success of my successor Corie Barry at the helm of Best Buy makes me particularly happy. My hope is that other CEOs and company owners my insights on this critically important topic to steer their organizations confidently into the future.
EXECUTIVE CHAIRMAN ROLE – JOB DESCRIPTION
Goals. The overriding goal of the role is to ensure the continued success of BBY by supporting the CEO transition, helping setup the new CEO for success.
- It is important to avoid any confusion about who is in the CEO role.
- The CEO has all the powers of a typical CEO, e.g., is responsible for recommending and implementing strategy of the company and for running the company on a day-to-day basis.
- The CEO reports to the Board, not to the executive chairman of the board.
- CEO should have free access to, and build relationship with all board members, especially lead independent director and head of nominating and governance committee.
Role of the Executive Chair
- The Executive Chair chairs the board, and as such has the duties outlined in the proxy regarding setting the agenda for Board meetings in consultation with the Lead Independent Director and the CEO, etc. By managing the Board, the Executive Chair allows the CEO to focus on managing the company. In addition, the Executive Chair is in a position to rally everyone around the CEO’s success.
- The Executive Chair is available to the CEO to:
- Advise and support the CEO on key matters/challenges, e.g., long-term strategy planning and capability building, transactions, external executive relationship building, executive development, investor communication.
- Assume certain responsibilities or carry out certain missions (under the CEO’s oversight), as may be requested from time to time, e.g., in the areas of government affairs, community relations, reputation building, leadership development/culture. The goal is to take some of the load off of the CEO in the initial stages of her tenure and in the case of leadership development/culture to help solidify a critical foundation for the long-term success of the company.
- Speak at various external or internal events, at the request and/or with the agreement of the CEO, typically in support of building the image and reputation of the company or continue building the culture of the company. This will be done to augment the CEO’s time availability and under her control.
- The Executive Chair does not attend regular internal management meetings, except at the request of the CEO. Note: Executive Chair will initially, meaning this summer, attend strategic offsites and M&A updates.
- Like other board members, the Executive Chair does not reach out down into the organization without the knowledge and support of the CEO (except in his capacity as chair of the board). “Nose in, fingers out” (NIFO) principle. Of course, in the cases of delegated missions, the Executive Chair works with the staff of the company, under the authority of the CEO.
- CEO and executive chairman typically interact through regularly scheduled one-on-one meetings. In addition, the Executive Chair is available any time at the request of the CEO
- Executive Chair will notably provide advice and be consulted on strategic direction, M&A activities, major strategic partnership, investor communication, and key organizational/ leadership matters. Executive Chair will help prepare and attend upcoming investor day, but will not have a speaking role. CEO will propose how to involve the executive chair in the preparation of future earnings calls and investor day
- Work done by the Executive Chair by delegation of CEO is done under the supervision of the CEO. Initial candidates include government affairs, community relations, leadership development, executive coaching