CEO Succession

Changing a CEO is one of the most critical decisions for any organisation. Egon Zehnder International regularly advises boards on this complex decision making process and supports boards in making the right choice. We have learnt that the success of a CEO succession – whether an external or internal candidate is chosen – is closely linked to the effort that goes into planning for the event, often several years ahead and supporting the change after the appointment is made.

When is the right time to kick-off the CEO succession discussion?

CEO changes can be planned or can occur unexpectedly. CEO succession should be an issue continually on the Board’s agenda. An early and non-threatening start enables the Board to reach the best outcome without compromising options.

We differentiate between three stages of CEO succession:

Stage 1: CEO expected to serve 2-5+ years.
This is the time to plan for future uncertainties: putting in place contingency plans to ensure the minimum disruption to the company’s operations if the CEO were to depart suddenly; more importantly, creating strong internal options for future CEO candidates. More than three quarters of companies make internal CEO appointments. Whilst this option clearly eliminates some of the risks associated with external hires, it may have been possible to provide better options by regularly benchmarking the top-talent, supporting their development and actively strengthening the talent pool through ‘CEO Apprentice’ hires.

Three stages of CEO succession

Stage 2: CEO change required.
This is the most critical stage of CEO succession. It is also the time when most companies realise that their CEO succession plan is not as robust as they would like. A thorough CEO selection process takes about a year. This involves defining a role specification, drawing up an external candidate list and assessing both the internal and external candidates against the specification. Once the new CEO has been selected there is usually a period for them to become available to take up the new role, which can be six months or more for an external appointment. Most CEO searches need to be conducted more quickly. Fortunately, many of these tasks can be started during the long-term stage of CEO succession planning, including drafting the job specification, external talent mapping, and building internal successor candidates.

Stage 3: New CEO hired.
It is easy to think that successful CEO transition has occurred once the choice is made; shareholders may even react favourably by boosting the share price. However, the success of the appointment is not in filling the position, but in the new CEO’s ability to integrate in the new environment as quickly and seamlessly as possible. CEO integration can and should be facilitated through establishing frequent feedback in order for the new leader to establish himself as quickly as possible.

Who owns the CEO succession process?

There are ultimately three critical owners of the CEO succession process who all need to ensure that the topic is on the agenda.

• The Board's most important responsibility is to appoint the CEO. The Chairman and/or the Chairman of the Nomination Committee should take ultimate responsibility for the process.
• The CEO has the opportunity to leave a lasting legacy by providing the Board with strong internal succession options.
• The Head of Group HR needs to work closely with the Board and/or Nominations Committee on CEO succession as it forms a key part of the company’s overall talent management and planning process.