CEO Succession, is your Board prepared?

19 Mar 2013

It’s a given, that  the most important task for a Board  is to appoint the right CEO. So how prepared is your Board for appointing a CEO successor, and what can possibly go wrong? And who ultimately will make the succession decision?

What happens when the Board is divided about the profile of the next CEO?

CEO selection is about the future. Understanding future challenges and identifying the right skills and a good culture fit are two key elements to the evaluation process. However, getting the profile right can have other challenges. Conflict can arise when the departing CEO is a strong and successful individual who carries significant influence over some directors or over a dominant director and exerts influence on what / who they want for a successor.

Conflicting interests and opinions can divide the Board and this is especially so where the issue is driven by ego. Deep seated divisions that prevent consensus will run the risk of lower quality candidates. If there is a dominant director or Chair who wants influence over the CEO it can lead to the selection of a CEO who isn’t right for the organisation, but is right for the director who wants the control and influence. The combination of a divided Board and an ineffectual CEO lacking in future leadership skills will inevitably end up in failure.

The recruitment process is flawed by a search firm that doesn’t have the networks or the depth of understanding of the culture and sector challenges, or the skill to act as an Advisor to the different interests of Board members.

Everyone is aware of the huge upheaval for Yahoo when the CEO Scott Thompson was forced to resign over claims on his CV about a degree he didn’t have. The shake up of the Board resulted in Daniel Loeb, the person who identified the error, getting to choose three of the Board replacements. HGI has been engaged in Board Search after a failed campaign lead by  Search firm with close connections to a couple of Board members, but not the right networks to successfully complete the Search. It’s a costly error on several fronts.

A Board that is either out of touch or doesn’t understand the internal culture of the organisation and / or doesn’t understand the sector challenges sufficiently cannot conduct a successful search and selection campaign.

Hiring an external CEO with a style that conflicts with what is needed to lead the organisation or is at odds with the internal culture is a certain recipe for failure.

It’s important for the Board to have an induction / on- boarding strategy that is thorough in familiarising the new CEO with the organisation’s context.

A CEO who doesn’t understand or appreciate the politics and relationships may make changes too quickly that could be disastrous. Like moving an influential and connected staff member out of the organisation. We have seen this happen too. Not someone recruited by HGI ( and it’s not likely to happen, because we have a very active on-boarding process that commences with marketing the job, person and culture fit and continues after signing of a contract by the successful candidate. We work closely with the Board Chair and the candidate to ensure thoroughness in this aspect of the process), and it didn’t matter if the staff member should have been moved on, in the end it was the CEO who had to walk because of political pressure brought to bear.

A Board that is not committed to developing its succession plan on a regular basis can find itself in a position of needing to hire a CEO quickly and without sufficient time for due process. Actively engaging in succession planning with a trusted CEO and a lead director will avoid this and is more likely to support a functional succession process which avoids protracted delays.

Even more effective, is proactive development to build an internal leadership pipeline for future succession choice.