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The Importance of CEO Succession Planning

02/11/2016 By Henry Draper

A drawing on a blackboard depicting people being considered for a role, with one being chosen

By Henry Draper - Head of Financial Services Technology Executive Search

The role of the CEO is without question of significant importance to any organisation, but how can a board protect the current state of their business whilst also planning for the future? Of course, we are talking about succession planning, but how can a board make sure they get it right? In this article, I would like to give a view of the different models and considerations when planning the succession for a CEO.

Current State

The board needs to determine the conditions under which they are looking at succession planning. It can be an incredibly effective tool in mitigating the risk of an incumbent CEO failing or leaving, by providing a mechanism for smooth transition. In this model, it is necessary to have a successor at the appropriate point in their development lifecycle to ensure they are ready when required. This can be a difficult balance to strike, as a “CEO-in-waiting” won’t wait forever!

Future State

The requirements for a successor to your current CEO should be dictated by the future strategy of the business. A common mistake is to look purely at the DNA that makes the incumbent successful or conversely – not successful. When it comes to drawing up a specification for future CEO selection, it is crucial that you look for capabilities, experience and leadership qualities that will enable the successor to drive the business forward and deliver against future strategic priorities.

Selection

Should a CEO run a search for a “mini me” successor or is different better? As you would expect, it depends on the organization’s needs, however, in many cases developing a CEO with a different skill set will bring new ideas and fresh approach to organisational challenges, allowing any successor to develop their own reputation.

It is widely believed that the hardwired dispositions required in a successful CEO have a common thread and are relatively well correlated with best-in-class CEO’s. The challenge in selection is in unearthing the strategic capabilities of an individual, as most contenders will currently be performing a supportive, and more tactical position rather than the strategic role of a CEO. Assessing the selected individual’s ability to develop the strategic side of their profile is of utmost importance.

Internal

It can be extremely beneficial for an organisation to promote internally and is often the main goal of a board. There are likely to be a number of potential candidates that meet the requirements for CEO succession, however, as the timeline for transition could be anything from 2-5 years, you may be looking at candidates displaying ‘potential’ rather than ‘proven ability’ and there will undoubtedly be individuals that purely don’t meet expectation. With that in mind, I would advise allowing plenty of time in drawing a short list.

External

If no internal successor can be found or if a board is minded by bringing in a fresh perspective, executing an external search for a successor can be an excellent solution. There is, of course, a distinction to be made between succession planning and the replacement of a CEO. In the former, the prospective individual should be identified and on-boarded at least 2-3 years before a planned succession. It is crucial that they are accepted by the organisation and the board has confidence ahead of transition.

Considerations

Grooming future leaders within a structured succession development programme will undoubtedly make these individuals more attractive externally. It is important to ensure those selected for succession are fully engaged and adequately rewarded. Increasing remuneration and elevating corporate title in-line with new/ intended levels of responsibility are relatively straight forwarded items and should be treated as housekeeping. Clear communication to the business of new levels of responsibility is a strategy often over-looked. This can be an incredibly powerful tool in increasing levels of confidence and engagement within the individual, as the likely result will be a rally of support from peers and team members. This also has a knock-on effect in motivating others to succeed.

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