Hundreds of companies experience a change in their c-suite leadership each year. With the median age of S&P 500 CEOs at 58 years old, this fact should not be surprising. The position of chief executive officer is one that most individuals do not hold until later in their career as they near retirement. People in this age category also suffer disproportionately from health problems associated with aging and seasonal illness, as we have seen during the pandemic. Whether a CEO leaves to enjoy the freedom of a planned retirement or suddenly has to step down to focus on their own health, the need for organizations to plan ahead for this eventuality is vital to maintaining business continuity.
In a survey published in Harvard Business Review in May 2020, 45% of board members interviewed in the United States stated that their company did not have a contingency plan for CEO succession. 29% of these same board members confessed that the board did not discuss it regularly either. These unprepared companies leave themselves vulnerable in the event that their CEO is unable to perform their regular duties.
Table of Contents
Strategic Alignment
The first vital step to developing a CEO succession plan requires the board to define the company’s direction. What are the short and long-term priorities? Which areas of the business are vital to ensure future success? This strategic alignment will define the essential character traits, skills, and experiences of the next CEO of the company.
This CEO profile should not be a long laundry list that describes the perfect leader. Instead, it should be, as much as possible, boiled down to the essentials. Some skills and competencies can be learned, however, there are traits and abilities that, if missing, will lead to lost opportunities and disastrous fumbles. This list is an essential guide to choosing the candidate that will lead the company in the desired direction for the future.
Plan Ahead
The CEO you need now is not the same as the one you will need two or five or ten years down the road. Current trends may hint at the economy’s direction, but changes can happen suddenly and unpredictably. Make succession plans based on what the board believes the company’s future will be but never leave your plans to stagnate.
Regularly discuss your CEO profile and succession plans as a board and with an executive search firm. Executive recruiters can be instrumental as you define and refine your skill requirements. As your company strategy changes and the market evolves, so should your plans. It can be challenging for c-suite executives to envision a future leader who can bring the company the same growth, success, and leadership as the current CEO. However, the future that materializes may require different skills and abilities to keep up with consumer needs.
Contingencies
While many CEO successions result from planned departures, situations arise where CEOs must unexpectantly step away for a time. Should illness or accident strike, who will perform their duties? It is vital to have a detailed accounting of the critical roles the CEO plays and plans for others to step up and fill those roles in her absence. Your list of possible candidates may include other c-suite members, managers, or even retired executives. Their intimate knowledge of business dealings, customers, and processes can make them an invaluable resource in an emergency.
Do not overlook the possibility that other vital players may encounter similar challenges. Plan now for scenarios where other executives would need coverage due to unforeseen circumstances. C-suite executives can support one another in carrying out critical roles, maintaining business continuity and serving customers.
Keep an Open Mind
Preconceived notions and ideas about what type of succession works best can cloud the board’s judgment, causing it to ignore the best-fit candidate. When it comes time to make a hiring decision, your succession plan may be outdated and irrelevant. Abrupt changes to the market may force you to change your strategy and CEO profile. The person that you have been grooming to take the position may not have the skills to lead the company into the future it faces.
Objectivity is key to making the right choice. Reexamine your candidates, diving deep into their references, experiences, and vision for the company. Do their abilities and skills align with your established profile? Does your profile still line up with your company goals? If you don’t have a candidate that fits the profile you are searching for, it is not too late to start again. Hiring a poor fit for such a vital role has far-reaching consequences. Delaying succession to find a better candidate is worth the difficulty.
Perfection
Determining who will succeed your CEO and drive the company for the next ten years is a weighty decision. Finding the best candidate is essential, but don’t wait for one who is perfect. Expect that every applicant you interview will have strengths and weaknesses. The question is can you live with the consequences of those flaws, or will it cost the company too much?
Hiring a new CEO is best done when there is time to consider the situation from all angles. Planning ahead and creating a CEO profile, which you regularly evaluate the board, sets you up for success as you search for someone to lead your company, whether it be next week or ten years down the road.