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By Dale S. Rose, Ph.D., President & Co-Founder
In my last post, I introduced a five-part series on best practices in CEO succession. This post is the first of the five, and it focuses on the most basic, often perplexing question: “Who owns it?” If you didn’t see the first post, I recommend reading it. The purpose of the series is to share some of the insights I’ve gained while helping companies manage the messy, sometimes confusing terrain of CEO succession. My role in the process is first to provide an outside perspective for boards and CEOs on their most talented leaders. Then I help them navigate the transition to the greatest benefit of the company and the individuals involved. Leadership transitions at the top are complex and can get personal, but they also provide a rare opportunity for companies to make a huge difference in their bottom line (in both directions!). Here’s the first question you should ask when trying to get it right.
Question 1: Who Owns CEO Succession?
No one owns the entire process. When it’s done well, the roles of the board and the CEO are distinct, interlocking on just a few key steps. The board owns the decision about who the next CEO will be, but the CEO is responsible for providing valid assessments of internal candidates, and developing those candidates as leaders so the directors have good options. Here’s what the sequence might look like:
Day 1: The board owns it.
On the CEO’s first day, the board chair or governance committee chair should ask her to prepare a list of internal candidates to replace her when the time comes. Okay, it might be nice to wait until the second day—at least let her enjoy one day without worrying about her job. Naturally the CEO won’t be able to complete the list on her first day, but the board needs to make it clear that evaluating and developing internal candidates is the CEO’s responsibility.
Day 2 to Day 365: The CEO owns it.
During the first year, the board should expect the CEO to provide a report on the readiness of each of the top five internal candidates to succeed her. As with the many other aspects of the company that the CEO will learn the first year, she needs to take stock of her leadership bench strength. In conducting an independent assessment of each leader, the first year will involve casting a wider net than in subsequent years: it could include as many as 20 executives (scale will vary depending on company size). At minimum, all of the CEO’s direct reports should be assessed. The assessment should provide the CEO (and the board) a clear statement of strengths and priorities for development in the current role. A separate confidential report that evaluates readiness for succession should be provided exclusively to the board and CEO. This report should identify needed development opportunities and estimate when the executive might be ready to succeed the CEO.
Year 2: The CEO still owns it.
In the second year, the same assessment process should be repeated but with a smaller subset of leaders. During this year, the CEO needs to be more actively involved with developing her top five candidates. She should be using the assessment results to assign special initiatives, change job responsibilities, and increase or decrease staff. She should also provide development resources (executive coaching, classroom learning, guidance and budget for new innovations, etc.) to support each executive’s growth in preparation for eventual succession.
Year 3-Succession: The CEO owns it.
Each year, the board should expect a clear, simple report from the CEO on the top five candidates’ readiness for succession. Based on the yearly assessment, the report outlines each candidate’s strengths and shortcomings and an estimate of how long it might be until they are ready for the job. As new leaders emerge or leaders fail to grow or overcome obstacles, the “top five” list should change. During this time, the CEO owns the process, and the board holds her accountable for results.
And then it gets slippery.
At some point, the board will start to ask itself, “Is the current CEO the right choice for the future?” Ideally, the board should ask this question as part of the annual evaluation process. When the answer becomes, “Maybe we need a change at the top,” then the CEO succession process has migrated into the board’s hands.
Pre-succession: The board owns it.
Once the board begins to discuss a change at the top, then ownership of CEO succession starts to move into the hands of the board. It should carefully consider the assessment reports on each of the internal candidates, but this is also the point at which they may discuss the pros and cons of internal versus external options.
Succession: The board owns it.
During succession, ownership of the process shifts decisively from the CEO to the board. Of course, any responsible board will consider (and in some cases even gather input from) all affected constituents, but when the time comes, the board must choose.
I am often asked if the CEO should choose their successor. My answer is always, “No.” Even in the case where the CEO chooses to retire against objections from the board, the CEO should give the board guidance, offer a recommendation, and then support the board’s decision. Only the board can offer an independent assessment of what is needed in the future without worrying about the egos of the current leadership.
Day 1 of the new regime: the board owns it.
Give the CEO that one day. On day 2, see above.
I would love to hear about readers’ experience on Question 1. Have you found success in “handing off” ownership of CEO succession between the board and the CEO? Which phase of the process has been most difficult for you personally, for the board, or for the CEO?
Read the series …
Question 2: Are Internal Candidates Better than External Candidates?
Question 3: What Criteria Should Be Used to Select a CEO?
Question 4: How Transparent is the Succession Process?
Question 5: When Should Planning Begin, and What Time Horizon Should Be Considered?