Start CEO Succession Early and Seize These Five Opportunities

The long-term survival of an organization is a responsibility that falls on the shoulders of the board, and there is no greater stress test of that duty than during a changing of the guard.

With CEO tenures getting shorter, there has been an increasing number of succession events. Yet many boards are not prepared for when CEO tenures come to an end—more than half of boards do not have emergency or long-term succession plans in place.

This oversight is not due to directors’ lack of awareness. While boards understand the importance of CEO succession, the reality is that more pressing issues (such as economic volatility, geopolitical flareups, and yes, a global pandemic) always take precedence—a psychological pitfall known as the importance-immediacy paradox.

Another complicating factor is that instigating a conversation with an incumbent CEO about succession can feel untimely and awkward. CEOs may be uncomfortable talking about their longevity and tenure. This insecurity can create a divide between well-intentioned boards trying to plan for the future and CEOs who are not yet ready to discuss succession.

Consider the events that took place at an international transportation company, which illustrates the perils of an unprepared board. When the CEO made the decision to hang up their hat, the board’s reaction was one of uncertainty, and a number of questions began bubbling to the surface: How will the markets react to the announcement? How will our recent successes be impacted? Do we have candidates ready to take over? The answer to that last question was ‘no.’

When the reality of the succession event finally hit, it became clear to the board that it would take several years to develop a strong slate of CEO candidates, a timeline that they did not have. The board ultimately had to select an unprepared successor, who faced criticism for his lack of readiness to take over. The alternative would have been to select an outside successor—but there are consequences in doing so too.

The antidote to such perils is to proactively manage CEO succession the moment a new successor takes over. Successions are complex on the best of days, and they are particularly traumatic when the transition occurs over a short stretch of time—imagine running a distance of a marathon at the pace of a 100-meter dash.

Treating succession as an ongoing and future-focused process creates five opportunities for boards and CEO candidates, ultimately facilitating organizational and incumbent success.

Opportunity #1: Facilitate board alignment

Many board members want to provide input on who the next successor should be but have limited time to focus their attention on a robust succession strategy. This is a breeding ground for tension, bad decisions, and frustration within the board, especially when directors have different ideas about what good leadership looks like and the longer-term strategic leadership needs of the business.

Starting CEO succession early not only ensures that everyone has a voice, but most importantly, that the board is aligned on the type of person and background required for the next CEO—a leadership blueprint. This north star establishes the objective and context-dependent criteria against which CEO candidates are evaluated and is arguably the single most important element of a robust CEO succession program.

The process of constructing and debating these crucial criteria enables the board to think about key requirements for the organization’s future objectively and critically, without being swayed by the current CEO’s profile or potential successors’ attributes. It also allows the board to meaningfully debate the future of the organization and the leadership required to get there.

Opportunity #2: Increase board visibility to successors

Investing time in CEO succession also adds value by increasing board members’ awareness of CEO candidates. A survey of directors led by Stanford University revealed that almost half of respondents did not understand the strengths and weaknesses of senior executives. Without true insight into potential CEO candidates, boards draw on their implicit knowledge, frames of reference, and, sometimes, subconscious biases.

In such instances, it is natural for directors to anchor confidently on familiar CEO archetypes, such as charismatic leaders. But while these individuals leave a memorable imprint, they might not always have the goods to be an effective CEO. Critically, these biases hurt underrepresented leaders such as women and visible minorities because they are not always psychologically associated with positions of leadership.

One way to counteract such biases is to ensure that potential CEO successors have greater exposure to the board by way of regular presentations that are created for directors to see the candidates in action. In doing so, boards ultimately make more informed choices and decisions when selecting the next CEO.

Opportunity #3: Enhance candidate grooming

A major contributing factor to CEO failure is improper grooming, a process that cannot be rushed. The prevailing wisdom is that, before becoming a CEO, candidates should hold at least two major enterprise positions, for a minimum of three years each, to ensure adequate learning and testing of their skillsets. With recent average CEO tenures ranging anywhere from five to seven years, candidate grooming needs to begin soon after a new CEO is chosen.

Staying close to your potential CEO successors not only ensures that you have an initial assessment of their suitability for the top job, but it also allows you to revise their fit over time. Armed with insight into their skills and capabilities, and importantly, who they are and how they are wired, you can create and/or maneuver candidates into the critical development opportunities necessary to increase their readiness to become CEO.

Ultimately, organizations are better positioned for successful CEO transitions if they have tested their top talent and developed a strong bench of multiple individuals who are ready to take over. When boards are thoughtful and focused on grooming long-term talent, they maximize the optionality of internal CEO candidates before an actual decision is required.

Opportunity #4: Ensure a sense of fairness and reflection

While the reality is that most candidates will not be the next CEO, it is still disappointing for those who have been considered for the position. Being vetted for the top job is a stressful and arduous process, and if done in a short amount of time, can make unsuccessful candidates feel like what was rightfully their job was stolen from them. However, a rigorous succession process that unfolds gradually mitigates such perceptions in two ways.

First, evaluating all candidates against the leadership blueprint highlights important gaps between the unsuccessful candidates’ profiles and those of the organization’s ideal CEO. Utilizing such objective criteria demonstrates to unsuccessful candidates that the CEO role was not theirs to lose and ensures that all candidates have a fair and equal shot.

Second, unsuccessful candidates also require time to process all that has passed and forecast what is to come. A rigorous succession plan allows for boards to help unsuccessful candidates with this cognitive work, allowing the directors to demonstrate their commitment to them, even though they were not chosen as the next CEO.

Opportunity #5: Strengthen candidate retention

When CEO successions are initiated and completed abruptly, unsuccessful internal candidates can feel sidelined and that their momentary involvement in the selection process was hastily evaluated. More often than not, candidates with such opinions eventually resign with the expectation to find better opportunities elsewhere. If exits materialize, this top talent will leave with some critical components that threaten a smooth transition—their expertise, institutional knowledge, clients, and possibly their direct reports.

A succession process that adopts a long-term focus provides opportunities for organizations to offer developmental insight and coaching to unsuccessful candidates. This emphasis on development ensures that internal candidates feel valued during the succession process and demonstrates the organization’s commitment to both these individuals’ growth and to retain them.

Beyond minimizing negative attrition, this strategy also supports positive change and momentum for the incoming CEO. Ingrained top team dynamics can be an obstacle and will inevitably have to shift with the presence of the new boss. For the new CEO, insight into the strengths and developmental gaps of the top team can better facilitate team effectiveness post-transition.

Authors

Rebecca Slan Jerusalim is a senior member of Russell Reynolds Associates’ Leadership Advisory group. She is based in Toronto.
Navio Kwok is a member of Russell Reynolds Associates’ Center for Leadership Insight. He is based in Toronto.