by Peter Thies
A CEO blows out because of a scandal. Or, s/he becomes ill. The company is facing stiff competition and it’s not growing. There are plenty of reasons why the expiration date on a CEO is often sooner than expected.
Surprisingly, many companies are caught off guard. They haven’t prepared by targeting what skills are needed in a CEO or leader to take the company to the next level. Nor have they groomed executives so they can gain the key experience needed to lead.
Here are a few companies that have done this well by effectively planning their leadership transition.
Value-Creating CEO Successions
Effective CEO succession is less about rocket science and more about due diligence. Based on our experience with clients and lessons learned from successes and failures, the following practices will help Boards effectively prepare for their next CEO.
1. Build to last. Create a CEO profile built on what the company needs in the future so you can assess and develop internals now against that spec. Don’t just ask, “Who’s ready to succeed the incumbent?” Ask, “What does the company need in future CEOs, and how do our first, second and third generation internal candidates compare to that profile?” This is important because the bar is rising in terms of CEO skill set. Companies are bigger and more global in an environment of accelerating competition, even in emerging markets. Executives must also adapt to quicker technological changes such as mobility and social media. Succession happens in the future, so be ready now.
2. Put your executive development programs on steroids. Don’t just ask, “How long until they are ready?” Ask, “What specific experiences are internal candidates being given to prepare them for a job they’ve never done before?” At the level of C-Suite candidates, most executives require intensive development experiences to break through old habits and transform into more enterprise-level leaders. Plain vanilla assessments and canned programs won’t cut it. CEO candidates frequently need to “crack the code “ on development challenges they’ve been avoiding for years, such as conflict aversion, rocky peer relationships, or lack of self-awareness. This isn’t easy. They also need exposure to tough constituents and will benefit from real-world experience presenting to analysts, investors, the Board, unions, etc.
3. Know the external market. Don’t just ask, “Which Executive Search firm would we use if we went outside?” Also ask, “ Which executives in other companies/industries fit best with our future CEO profile, and how likely would they be to come on board?” Convergence in many industries means that the Board should be tracking executives in other industries, not just their own. Market knowledge is at a premium. Boards can engage executive search firms in a process known as “market mapping”, where external targets are identified but not approached.
4. Know your own. First hand knowledge of the “heirs apparent” beats talent reports every time. Boards shouldn’t just ask for names of internal candidates; they should get to know them formally and informally, beyond presentations. One interview in a search process is insufficient at best. Ajay Banga, CEO of MasterCard, proactively sets up formal and informal interactions between the company’s top talent and the Board on a regular basis.
Summary – the CEO Succession Strength Meter
Like the strength meter of your password on a website, you can test the strength of your CEO Succession Process using this scale. The closer to green, the closer your company is to being adequately prepared for all scenarios of CEO Succession.
Peter Thies, Ph.D. is President of the River Group, LLC a management consulting firm that offers advice and solutions to executives leading transformational change.