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Perhaps no single factor has a greater impact on a company’s future than the selection of a new CEO. Choosing one is arguably the most important decision a board can make.
While some situations demand outside successors — such as a turnaround or a shift in the industry or company strategy — we believe that internal candidates are the best choice. Keeping pace with innovation requires a new sort of leader — one who can build complex social networks and tap the “latent innovation” of the organization and its business partners. Not surprisingly, the edge often goes to someone who is respected by the organization and the larger ecosystem in which it operates.
How can a board find a new CEO who’s equipped to deal with today’s challenges? Here are seven tenets of a “gold standard” succession process:
1. Align the board on future CEO profiles that are driven by business strategy, and define short- and long-term business priorities. Then link strategic priorities to the experiences, competencies and traits that the next CEO should have. Use all of this to create a CEO Success Profile that can serve as a blueprint for evaluating candidates.
2. Assess candidates against industry benchmarks, indicators of executive potential and the CEO profiles you’ve developed. Acquire an accurate, unfiltered, multidimensional view of candidates’ strengths and weaknesses using tools such as quantitative assessments. Evaluate not only relevant competencies and experiences, but personal traits and drivers that will align with success.
3. Don’t just seek to replace the incumbent; think two to three CEO moves ahead. CEO succession is an ongoing process to develop the talent pipeline. Companies should both prepare capable near- and midterm leaders, and identify those deeper down in the organization with leadership potential.
4. “Cross-train” generations of CEO successors with on-the-job training, intensive coaching, mentoring and education. Once you’ve found not only a replacement CEO, but generations of potential successors, help those next in line blossom with development plans geared to their needs and what the organization will require in a future leader. As potential successors become contenders
for the role, focus on identifying areas to accelerate growth and close critical gaps.
5. Become intimately familiar with the potential CEO successors. There should be seven in your company across several generations. Do you know who they are? In addition to having opportunities to develop their potential, these individuals should gain exposure to the board in both formal and informal settings. Once someone is in the running for CEO, the board will need to know more: What is this person like under pressure? How does this affect his leadership? Does he possess the agility and courage to make difficult choices?
6. Keep CEO succession as a standing board agenda item to ensure a multilayered, multigenerational process. Succession planning should be an ongoing process, and continue even immediately after the appointment of a new CEO. As potential leaders emerge, the board should be kept apprised of development plans.
7. Ensure that your talent management and development planning are linked to your longer-term business strategy. During regular board meetings and at off-sites, many companies link strategy sessions and talent development sessions to ensure that any shifts in business goals inform what is required of future leaders. Because your organization must consider a number of possible “futures,” corresponding leadership profiles should be planned for as well.
Growing and maintaining a high-caliber leadership cadre require commitment and investment from companies and their boards. Capable successors are the result of planning, mentoring and guidance — ideally as much as five years ahead of a planned transition — to ensure that they acquire the right skills and experience.
Your leadership investment will be paid back many times over. This approach also creates an organization that top talent vies for because it offers personal development and career growth. Having a CEO succession plan protects shareholder value because it increases the probability that the right leaders will be in place to deliver sustainable, successful results
