Leadership changes define companies. For CEOs, the topic of succession, however, feels like the reluctant acceptance that their time is coming to an end—a delicate conversation that most put off for as long as possible.
But by the time most executive leaders start succession planning, their companies have already suffered from not having cultivated a pipeline of talent to fill a C-suite position. They haven’t had the foresight to ensure their board is aligned and prepared. They have failed to make the required effort to continue transferring institutional knowledge to a new generation. This inaction creates more vulnerability at the precise time when companies need stability and forward momentum more than ever.
At Diestel Executive Search, we have helped many CEOs with the succession process —from precision manufacturing and aerospace to companies on the Silicon Slopes that are going through a hyper-growth period or changing ownership. In our experiences, we realized that CEOs are not prepared because they see succession as stepping down from the top spot. The future of their business is their pride and joy; they are deeply connected to the company and the business.
Let’s explore why succession planning feels so personal to CEOs. We’ll also share how CEOs can and should get over the hump to truly ensure that they have the most qualified leaders in place to take on C-suite roles in their companies. We’ll also look at Diestel Executive Search’s role in helping with a company’s succession plan.
Table of Contents
Why do CEOs feel reluctant about succession?
CEOs have many good reasons to be hesitant about a succession plan. The CEO may have built a company over the course of 20 to 30 years or spent 10 to 20 years running a company as a leader. The company is not only their professional life—it’s personal. So, when the CEO knows that they have to think about the succession plan, they start to worry about retirement.
CEOs feel hesitant about succession for a few other reasons:
- Believing that the announcement of a successor is a clear signal that retirement is on the horizon
- Afraid of losing influence
- Thinking that someone could do the job better or differently
- Believing that the leadership team is not qualified enough to take over the role
- Thinking they still have time and do not need to create a succession plan yet
If a CEO even starts to think about succession and a CEO isn’t 100% ready, it automatically leads to uncomfortable conversations with the leadership team, board, and even HR and other stakeholders.
Who will be chosen? Who will be passed over? How do you develop the skills required for those that are going to be a CEO in the future without making other high-performing leaders in the C-suite jealous or envious that they didn’t get a chance to be the chosen one? These are real problems, and they become bigger issues the longer a CEO waits to even consider the thought of succession planning.
Research has consistently shown that companies without a succession plan in place or those companies where the board was not even aware of the succession plan that was being developed face a higher risk of operational disruptions, key employees leaving, and stakeholders feeling let down by the company’s decisions in the event of an unexpected transition. The cost and consequences increase many-fold if the leadership change is reactive rather than proactive—such as a health crisis, sudden market shifts, burnout, or family emergencies.
The main reasons that companies delay succession in Utah’s current and fast-paced markets
The business landscape in Utah has changed significantly in the last ten years. With new and large companies coming to Utah and setting up business, Utah is no longer dominated by real estate, manufacturing, and the healthcare industry. The state now also has robust tech corridors, advanced manufacturing firms, and high-end financial service firms. In fact, a company in financial services can have over $200 billion assets under management and is a good example of fast-paced markets, so the stakes are higher when a sudden transition of power occurs.
If a company waits until the last moment or never does any planning and the CEO suddenly leaves or the board wants a leadership change, a lot can go wrong. Even before the new CEO is chosen and can start working on hitting the ground running:
- Projects come to a halt until the new person arrives
- Relationships with board members, investors, customers, and business partners are at risk of losing that personal touch and history that has been established over time
- High-performing executives who were in the running for a new CEO role begin to get calls from headhunters
- Institutional knowledge that the company needs in order to continue working can easily leave a company once high-performing leaders are given the cold shoulder when it comes to promotion or succession
We have seen companies where the board has panicked in the event of a CEO transition and have no succession plan in place or have failed to develop a leader internally. In the panic, boards make hasty choices by recruiting someone from the outside instead of developing the leader that was already in the company. Sometimes these external candidates don’t even fit the culture of the organization because the board was not involved in the development of the candidates that were in the company all along. It takes much longer to bring in an external person compared to someone already in the company. It costs the company significantly more in money and lost opportunities.
In today’s market, where the talent pool is much larger and people can change jobs easily, your competitors do not stand still. They keep attracting customers and keep going. Your customers are not going to be loyal to your brand if you are not taking care of business because of a hasty CEO transition. Stakeholders and investors get nervous as well.
Companies that have the CEO role and an entire leadership team intertwined with their personal lives may not plan for succession properly. This is especially the case for family-owned businesses or founder-led companies.
Succession planning starts with assessment
The problem with some of the CEOs not wanting to create a succession plan is that they don’t see the need for it because they feel that they are not going anywhere soon or retirement is too far away.
Planning should start about three to five years before any planned transition but as early as possible is key. The time you start to plan is not when you think you are going to retire but more of when you have an idea. Some may want to stay in the company longer, and some may choose to retire shortly, and that is all fine if a plan is in place.
Succession planning and the development of a potential successor should start with an assessment of the future vision of the company. Ask questions about where the company is heading, what the corresponding core values, mission and strategic plans that may be in place in three to five years, and so on. These will help form the foundation of your succession plan.
How well equipped are your current executive team for the future company?
Questions should be asked around the following:
- What are the core values of your company and do these need to change?
- Is there anything that the leadership team could do differently?
- Will the future company require new skills that the executive team might not be able to deliver?
- Is the current leadership team equipped with the right skills for where you want to take the company?
- Are you seeing any gaps in the skill sets or areas that will be crucial for the future company?
- Do any of your current executives need to take on a more active role?
- Do you have any executives who should step back or step out because they are holding the company back?
Planning the development of the future CEO
The above questions will give you answers on what your future company will require from a CEO. Based on those answers, you should be able to map that with the current team of executives. The future CEO may already be in the company or might need to be recruited externally. The real challenge comes with companies that have multiple capable executives who are all vying to be the next CEO.
The best and easiest succession plan is to develop your leaders internally and to start now.
Diestel Executive Search can help initiate succession planning and the respective executive development process. In several cases, we’ve worked with internal leaders who were ready to leave the responsibilities of their existing function and had the potential for CEO-level leadership, but required further development and exposure to round out the skills needed for that role.The only way to truly find out about the skillset of an executive is to have a truly transparent development plan and to put the executives through their paces by putting them through real-life situations.
Finding a strong successor
The choice of a successor might be easier for a company and board when looking at a start-up. Founders are much easier to assess as they have been there from the start and know the business inside out. Also, the founder should have the company’s growth and direction in their vision and will have likely developed capable leaders in key areas of the company so it is an easier task to find a successor.
Partners in succession planning: Executive search firms
Partnering with an executive search firm for succession planning provides a few benefits:
- Objective third-party evaluation of internal and external talent
- Benchmarking market trends and salary research to identify and grow internal talent
- Confidential research of external candidates
- Support and guidance throughout the process for boards, CEOs, leadership teams, and HR
Remember: plan for the future today.