The CEO’s role in succession planning……

1. Heidrick & Struggles Governance Letter
The CEO’s role
in succession planning
The level of collaboration between the CEO and board can vary significantly,
and several factors can change the dynamics of the process.
By Jack ‘Rusty’ O’Kelley III, Jeff Sanders and John Wood
D
espite the barrels of this dynamic and direct it thoughtfully
ink and numberless bytes through the early, middle, and late stages
that have been expend- of a planned succession will be able to
ed on CEO succession discharge this important duty far more
planning advice, many effectively than if they simply feel their
directors remain dissatisfied with the way forward.
process. In one of the most comprehen-
sive surveys of board directors to date, It’s never too early
more than a third of U.S. directors and While the board ultimately owns the
more than half of directors outside the succession planning process, newly ap-
U.S. indicated that their boards do not pointed CEOs have an opportunity to
have an effective CEO succession plan- pleasantly surprise their boards by ini-
ning process. Conducted by Women- tiating the succession planning discus-
CorporateDirectors (WCD), Heidrick sion almost as soon as they take office.
& Struggles, Dr. Boris Groysberg of the In fact, we coach new CEOs to introduce
Harvard Business School, and researcher the subject no later than their second
Deborah Bell, and drawn from a sam- meeting with the full board. The further
pling of more than 1,000 directors in 58 out the time horizon for the succession,
countries, the 2012 Board of Directors the more focused the CEO should be on
Survey also found that more than two- recruiting and developing as many suc-
thirds of U.S. directors and more than CEOs may be understandably cessors as possible. The day to day re-
three-fourths of non-U.S. directors say sponsibility for this talent recruitment
their boards do not discuss the succes- reluctant to start talking about and development falls to the CEO, but
sion planning regularly or do so only their exit almost as soon as they the board should ensure that they are
annually. receiving regular talent updates and in-
While the causes of dissatisfaction no make their entrance. teracting with the high potential succes-
doubt vary from board to board, we have — Jack ‘Rusty’ O’Kelley III sion candidates to actively monitor the
found that breakdowns often stem from succession process. In one best practice
lack of clarity about the sitting CEO’s example in a large U.S. company, the
role in the process and the dynamics that selection process should quickly shift board and CEO began planning seven
should govern it. In the early stages of to the board. Boards that understand years out from the CEO’s expected re-
the process, the CEO is responsible for
the leadership and development of their Jack ‘Rusty’ O’Kelley III is the managing partner, Leadership Consulting, Americas, and core
team, with the board monitoring the member of the global Board Advisory Practice at Heidrick & Struggles International. Jeff
infusion and development of talent. As Sanders is vice chairman and managing partner of the firm’s CEO Practice in North America
the likely date of succession approaches, and a member of the North American leadership team. John Wood is vice chairman and a
the level of direct involvement in the partner in the Chief Executive Officer & Board of Directors Practice.
48 directors & boards

2. Heidrick & Struggles Governance Letter
tirement in order to ensure multiple in- work, thus defusing any personal sensi- siders the strategic direction the com-
ternal candidates were ready. tivities going forward and avoiding any pany is taking and revisits the profile of
Given the average tenure of CEOs — misunderstandings that could result the kind of leader the company will need
8.4 years in 2011, down from about 10 from the board suddenly raising the in the long term. The board committee
years in 2000, according to the Confer- subject after the CEO has been on the chartered to lead succession planning
job for a year or two. — usually the nominating committee or
During this early stage, the CEO works a special committee — re-validates the
with the chairman or the appropriate existence and qualifications of the emer-
board committee to make sure that an gency successor, or potentially identifies
emergency successor has been identified a different one.
and to develop a profile of the skills and A new strategy might now require a
experiences the company would need in different type of successor, or the previ-
their next chief executive should a suc- ous designee might have left the compa-
cession take place in the short, medium, ny or exhibited shortcomings that caused
or long term. This profile and set of ex- the board to reconsider. The committee,
periences is based on an analysis of the
company’s strategy rather than what’s
needed to fill the job today. Too often,
CEO succession planning is viewed as
an event about a single individual rather
than about readiness to meet leadership
needs under any circumstances.
In addition to helping formulate the
future CEO skills and experience pro-
file, the current CEO begins to mentor
potential internal successors. He or she
creates development plans and potential
Boards should ensure that a career paths to prepare viable candidates
to assume the top job, which is why it is
candidate has the requisite time essential to begin the process as many
to close what may be multiple as five years in advance. If the process
begins too late, it is extremely diffi-
development gaps. cult to ensure that a candidate has the
— Jeff Sanders requisite time to close what may be mul-
tiple development gaps by, for example,
assuming an international assignment,
ence Board — the countdown to succes- getting comfortable with an unfamiliar
sion is getting shorter, and in many cases business discipline, and improving gen- An external scan could well bring
may be as short as five to seven years. eral management skills. The CEO should
Because even this shorter time frame ap- also consider how the organizational the board to a deeper apprecia-
pears to be so far in the future, it is easy structure will help or hinder develop- tion of the internal candidates.
to put off the discussion. Further, CEOs ment and alter the structure, if neces-
may be understandably reluctant to start sary. Throughout the process, the CEO — John Wood
talking about their exit almost as soon as should be reporting to the board on the
they make their entrance. development of top executives and seek-
The board, too, may worry that in ing the board’s sign-off. in consultation with the CEO, also revis-
bringing up succession almost immedi- its the CEO successor profiles for what
ately, they will risk alienating the CEO, The center of gravity has now become the medium term. As
on whom so much depends. Neverthe- begins to shift the list of potential successors begins to
less, this is a conversation that should In the middle stages of the process — narrow, the board members should also
begin early, and if the CEO does not roughly three to five years out — the spend time building relationships with
initiate the conversation, it is the board’s board becomes more deeply involved, the executives.
responsibility to do so. They should then and increases the frequency of discussing At this stage, the board may want to
establish succession as a regular agenda succession planning as an agenda item. consider a scan of the external market for
item and map out how the process will In collaboration with the CEO, it con- CEO talent and assess senior executives
second Quarter 2012 49

3. Heidrick & Struggles Governance Letter
in order to benchmark internal candi- The board in the final stages During this stage of the process, the
dates against that external talent. The In the final stage of the process, from committee should continue to solicit the
scan should provide a far deeper under- roughly three years to zero hour for the CEO’s input. The committee makes its
standing of the strengths, weaknesses, succession, the pace quickens and the recommendation to the full board, typi-
and required development plans for in- pendulum swings fully to the board. The cally offering a single candidate or a slate
ternal candidates relative to external op- CEO, in consultation with the board, be- of finalists for consideration. Once the
tions. When paired with an assessment gins to develop a more definitive time- selection is final and negotiations with
of internal candidates, this external scan frame, and succession is discussed quar- the candidate are completed successfully,
could well bring the board to a deeper the incumbent CEO helps develop tran-
appreciation of the internal candidates. sition and on-boarding plans for the in-
Through this assessment, the board be- Often, boards are inclined to coming CEO, seeks the board’s sign-off
comes more aware of the strengths, weak- on those plans, and makes sure internal
nesses and risks throughout the manage-
give greater responsibility to and external communication plans are
ment ranks, an issue in which boards are CEOs who have performed in place. The result should be a smooth
becoming increasingly involved. and well-received transition and a board
While the center of gravity at this
well and are regarded by that is well prepared for the next round
stage has shifted to the board, the dy- the directors as impartial of succession planning, which begins
namic is far from mechanical. The extent shortly thereafter.
of the CEO’s involvement and influence
assessors of talent.
throughout the process will depend, in Careful management
part, on his or her performance, the for- terly. In the final year, the selection and of the timing
tunes of the company, and the board’s transition process is discussed at every Boards that successfully manage this dy-
view of the CEO’s objectivity. The level board meeting. namic understand that the key question
of collaboration between the CEO and When possible, beginning several years in succession planning is not whether to
board can vary significantly, and there out, the members of the nominating keep the CEO entirely at arm’s length
is no “one size fits all” for the succession committee and other independent direc- or to let the CEO dominate or even to
planning process. Several factors can tors should spend time with potential in- try to achieve some golden mean. It is a
change the dynamics of the process: the ternal successors in both formal and in- question of timing — of the degree and
board’s culture; the CEO’s capacity and formal settings. One-on-one encounters nature of the incumbent’s involvement
objectivity; and, of course, the working can be especially important for getting as the process unfolds and of the board’s
relationship between the two. a genuine feel for a candidate’s view of ultimate assumption of its responsibil-
Often, boards are inclined to give the company and the world in which it ity. Even those directors who express
greater responsibility to CEOs who have operates, as well as for the individual’s satisfaction with their current approach
performed well and are regarded by the personal attributes. The committee also might find that careful management of
directors as impartial assessors of talent. continues to manage an “inside/outside” the timing could not only improve the
However, even when this is the case, the process, assessing inside candidates while process, but also increase the chances of
board should remember that, while the concurrently looking at talent on the attaining an ideal result in one of their
sitting CEO remains an important con- outside to ensure that the best candidate most important duties. ■
tributor, it is responsible for the process is ultimately selected. Throughout the
and will need to have enough unbiased external process, the board must use the The authors can be contacted at rokelley@
information to determine who will be utmost discretion in managing the risk heidrick.com, jsanders@heidrick.com, and
the next CEO of the company. of alienating internal candidates. jwood@heidrick.com
50 directors & boards