The most critical role of a board is the selection of the CEO.
Congratulations if you are on the board of a successful company which champions talent. Why? Because evidence suggests well prepared internal candidates for the CEO role are twice as likely to succeed as an external appointment. That is not to say that there are not instances where an external appointment is the most appropriate course of action. However, few boards admit to spending enough time on CEO succession planning. If you empathise with this then don’t underestimate the value of considering the following in order to ensure the next CEO transition is a successful one.
- Develop a formal succession plan which aligns the ideal CEO profile with the strategic direction of the company.
- Hold the CEO accountable for succession development from day one in the role. Insist that at least three candidates are required as potential succession contenders – this will ensure there is a choice.
- Ensure succession is regularly on the board’s agenda. Regularly review the succession plan.
- Get to know your high potential executives who are on track for key leadership roles. Using both formal board presentations and more informal situations outside of the board meeting (such as dinners) provides the Board with access to the top two layers of management.
- When a new CEO is required, your role as a board is to ensure that the process is rigorous, careful, and defensible. Your process should ensure you are choosing the best CEO available, rather than merely the best choice from within the business. Consider a process which assesses internal candidates against their peers at other organisations.
- Be wary of being seduced by external candidates – often as a Board you will have spent enough time with internal candidates to see their flaws. On the contrary external candidates can appear flawless in the limited interactions from the interview process. In an environment of uncertainty, you need to be sure the CEO’s career success has been based on their individual efforts as opposed to being based on favourable market conditions. Pay close attention to how they performed during challenging market situations or when difficult decisions had to be made.
Ensuring high potential talent is properly identified, challenged and rewarded should be a key area of interest for Boards. We wish you every success in ensuring your Board’s approach to succession is as much about strengthening the leadership bench as it is about developing the CEO.
