Creating the perfect CEO succession plan is tricky, yet it’s one of the most essential steps a board can take. No decision has a more significant impact on your company’s future than selecting a new CEO.
How can a board select the next CEO for its company in today’s ever-evolving marketplace? Here are 6 tips to help you perfect the process.
Tip 1: Agree on the Necessary Experience, Skills, and Personal Traits
A lack of consensus on how your company’s short- and long-term goals will impact CEO succession planning can be a significant roadblock. Here’s how you can mitigate this.
First, the board needs to understand what factors are most likely to impact the company over the next 3-5 years. These factors can include customer demands, technological advances, or increased competition. From there, the board needs to figure out how company strategy should handle these changes.
Once these factors are determined, boards can decide the experience and skills they’ll look for in their next leader. These leadership traits should enable the next CEO to lead the company through these transitions.
Since market conditions change rapidly and frequently, what the board defines as necessary skills, traits, and experience is fluid. As part of building a successful CEO succession plan, the board needs to constantly update and stay on track with the ideal profile of the company’s next CEO.
Tip 2: Think 2 or 3 Moves Ahead
A common mistake boards make is to only replace the incumbent. In reality, the CEO succession planning best practices dictate that boards should plan a few moves ahead, rather than focusing on the near-term alone.
In practice, this means constantly sifting through talent and considering which people have CEO potential for well into the future. Look across all levels of your organization, as well as those outside your company.
Actionably, the board and its CEO should work hard to foster an environment where employee development is a priority. Giving CEO candidates exposure to leadership opportunities and working with the board is essential for building their skills.
Tip 3: Know Who Your Top 7 Candidates Are… At All Times
In line with the idea of thinking a few moves ahead, the best CEO succession plan is one that forces boards to know who their top seven candidates are at all times.
Although the number doesn’t need to be as high as seven, it should be greater than two or three. Your top candidates should include a current senior leader and a few other top performers from all ranks of the organization.
At this point, once one of these individuals is vying for CEO, the board can answer essential questions such as:
- How does this candidate perform under pressure?
- What company culture does this candidate foster?
- What are this candidate’s strengths and weaknesses?
- Can this person make difficult decisions with little information?
Having had an eye on candidates across many years enables the board to make the best decisions for future your organization’s CEO.
Tip 4: Determine Who’s in Charge of CEO Succession Planning
Building a CEO succession plan and overseeing the process is primarily thought of as an entire-board responsibility. While this may be true, chalking it up to something that broad can stall progress.
Instead, make sure your board knows who’s in charge of what regarding CEO succession planning. You can nominate governance committees to lead individual efforts, ensuring defined responsibilities and roles.
Should your board assign committees to CEO succession planning, that committee should regularly update the whole board, so everyone understands the timeline, process, and pipelines.
Tip 5: Support the Outgoing CEO
With the looming CEO transition right in front of your company, it’s not uncommon for current CEOs to feel tossed to the sidelines. The best CEO succession plans ensure the current leader feels like an integral part of the transition process.
One of the defining factors of a CEO’s legacy is how (s)he leaves. Help set your CEO up for success by allowing him or her to work directly with the board and incoming CEO and keep the organization on track during this transition.
Once the next CEO is selected, the current one can help bring him or her up to speed, meet with candidates who didn’t get the position, and consider what position (s)he will have once the transition is finalized.
Remember to support your current leader during this transition to make your CEO succession plan as airtight as possible.
Tip 6: Have a Well-Thought Out Emergency CEO Succession Plan
What happens if your CEO decides to leave abruptly? Do you have an emergency CEO succession plan? If not, your company is in trouble.
Emergency planning requires the board to identify strong interim candidates, including other c-suite executives and candidates being prepped to take over as CEO.
Consider having emergency candidates spend time with the current CEO and board to understand their comings and goings; this helps ensure that they can successfully run the company in the interim if needed. Your board could also consider which of themselves could temporarily step in.
Common Challenges to Consider
Here are some common CEO succession plan challenges companies face:
- Only 32% of CEOs are performing as expected
- 17% of companies have no clear internal CEO successor picked out
- 7% of companies feel they have more time-sensitive matters to address than crafting a CEO succession plan
- 6% of boards feel uncomfortable discussing CEO succession plans
- 6% of boards struggle to agree on essential candidate abilities
Before launching into CEO succession planning, consider these challenges and how they might impact your board. From there, you can work around them.
Leave Your CEO Succession Plan to the Experts
Want to limit the time your board spends on CEO succession planning? Not sure how to find the best candidate? No matter your challenges, bringing an executive search firm on board can make CEO succession planning significantly smoother.
A qualified executive search firm widely opens your candidate pool and can help you make some of the toughest decisions. Jennings Executive specializes in select-few industries and has over two decades of experience picking the best leaders for the best companies. Let us help you navigate the complexities of executive recruitment.