Leadership Transition: How to Succeed at Succession

Here's a governance test question to pose to your board: When should you start a CEO succession plan? Correct answer: The day a new CEO takes office. The point, of course, is that it’s never too soon to start planning for a leadership transition. As dramatic as that may sound, it’s actually a fundamental truth, one borne out by anecdotal evidence on a regular basis.

Lately, changes at the helm seem to be coming fast and furious. Volkswagen, United Airlines, Twitter, Google, P&G and Ralph Lauren are among the many high-profile CEO turnovers that made headlines in recent months.

Leadership transitions like these are arguably one of the most significant events in a company’s life. Plus, the cost of a lengthy search process—or, worse yet, making a poor pick—can be severe, Ted Bililies, managing director at AlixPartners, pointed out to participants at a recent roundtable discussion sponsored by AlixPartners. “Studies have shown that the amount of time it takes to place a CEO is negatively correlated with its future earnings,” he said. “You need to think of this as really a risk management event in your company.”

“Studies have shown that the amount of time it takes to place a CEO is negatively correlated with its future earnings.”—Ted Bililies, Managing Director, AlixPartners

Yet, while most CEOs and board members nod sagely whenever the importance of a strong succession plan is voiced, few companies can attest to having one in place—or, in many cases, even knowing what one entails. In a recent AlixPartners survey of more than 100 senior executives, 31% of respondents said their companies had no CEO successors identified, while 20% said their firms had just one potential successor identified.

Organizations that lack a pipeline of multiple, viable candidates risk having to scramble to find a successor in a hurry—which, in turn, heightens the potential for a clumsy passing of the baton. Such was the case at Cooper Companies when its former CEO retired for medical reasons. “The transition process proved more difficult than the board would have guessed at the time, with a lengthy outsourcing engagement to look at who was available and a lot of meetings,” recounted CEO Robert Weiss, who was subjected to a rigorous 360-degree review process as part of the CEO candidate vetting effort. “I had worked hand-in-hand with the CEO since the early ’90s and been on the board for most of those years, so you would have expected it to be a smooth transition.”

Instead, board members struggled to reach a consensus, dragging the process out.

The Insider Advantage
Determined to avoid repeating the experience, Weiss and his board immediately began planning for its next CEO succession by identifying a pool of six potential successors and focusing on filling in gaps in their experience and skill sets. “We spent energy making them as good as they could be by rounding out whatever they lacked—operations background, marketing expertise, Wall Street exposure,” he explains, adding that he made the outside consultant who had been charged with evaluating him as a CEO candidate a member of his team.

“All six [CEO candidates] have been through 360 reviews, which is a good exercise to see who really wants to rise to the occasion. I think the cream will rise to the top and it will go from six to four to two over time.”
CEO Succession 1


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