Navigating Chief Executive Officer succession is critical to the success of a company, even one that has been established and successful for some time. One of the board of directors’ most important roles is naming, evaluating and compensating the CEO. While important input is often provided by the sitting CEO, the head of human resources, often an executive recruiter, and sometimes an industrial psychologist, the board is ultimately responsible for this critical hire.
There is a lot of research and experience that shows that finding a leader that is a “culture fit” for an organization is important. An effective board should understand the company culture and strategy well: what is effective and what it would like to be changed. Boards should conduct interviews with this in mind, briefing candidates on their vision for the company and determining whether the candidate fits. Even otherwise proven CEOs can fail in organizations where the Board and CEO are not aligned on culture and strategy.
Directors and any advisors should be transparent with candidates about the board’s expectations and the company’s challenges. Interviews with potential CEOs should probe their backgrounds, prior executive leadership experience, and their plans if named CEO. In fact, I have found that narrowing the field of CEO candidates to a few finalists and having each present to the entire board his or her vision and strategy for the company in an approximately two-hour presentation can be an effective final input for selecting a new CEO.
Once the next new CEO has been chosen by the board, there are still a number of important topics to address, including compensation, a press release and related communications, and notifying the senior management team (particularly if there was an internal candidate who was not chosen) and the broader employee base.
The on boarding process for a new CEO should be extensive and can last a few months. Meetings with management and employees, conversations with major shareholders and key customers, and site visits are important early steps. Surprisingly, a 2010 survey about CEO succession planning conducted by Heidrick & Struggles and Stanford’s Rock Center for Corporate Governance indicated that half of the surveyed companies had no transition plan for a new CEO. Do not let this happen at your company.
The process for finding a new CEO and the selection of this key leader requires a substantial commitment of time and energy. On boarding is important, too. Make it a goal to find a leader who is aligned with the board on culture and strategy and has the proven ability to execute effectively. The CEO is the fulcrum of a company’s strategic direction, and the succession process should be treated with the importance it deserves.
Jonathan F. Foster
Founder & Managing Director – Current Capital Partners LLC