Egon Zehnder recently hosted an energy and industrial sector dinner in Houston where board member attendees represented a range of business sizes and public and private ownership structures. CEO succession was the primary topic of conversation, with board members sharing their personal accounts and advice. Here is our Synthesis of the conversation:
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Get a head start. Boards should begin CEO succession planning as soon as new CEOs are appointed. The process should be evergreen with clear ownership from the board, which is essential to good governance.
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Partner with CEOs and communicate expectations. CEO participation in board succession planning is crucial; boards are responsible for setting this expectation with the CEO from the outset of his or her appointment. Analyze a CEO’s reaction to gauge additional insight into leadership qualities — strong, confident leaders will have no problem stepping into the CEO succession conversation while insecure leaders may push back aggressively.
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Be thoughtful about the former CEO’s place on the board. While preserving institutional knowledge and capabilities may be a priority, having the former CEO sit on the board complicates the role of his or her successor. One participant discussed the challenge he faced once he stepped into the role and had to navigate two former CEOs on his board. Boards should maintain an awareness of these dynamics and how they play into succession discussions.
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Stay involved and diligent. Rotate high potentials through board meetings so the board has an opportunity to interact with a variety of up-and-coming leaders at the company. Some boards appoint a board member to play devil’s advocate, or deliberately challenge a possible successor during a board meeting to assess grace under pressure. It’s important to connect with other board members, because a peer may need to step into an interim CEO role at any time.
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Keep an eye on the external market in parallel to cultivating internal talent. While developing internal candidates is necessary and often preferable, having a market view of how certain talent compares to others will ultimately strengthen the robustness of the process.
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Look for opportunities for CEO successors to develop skills. Opportunities such as joining another company’s board of directors will help a successor gain exposure to governance, managing a board, and dealing with external stakeholders. That said, exposure to the outside can also make a company’s designated successor more visible, and a target for poaching. Finding the right balance is key.
Every CEO succession presents a variety of opportunities and challenges, meaning there isn’t one multipurpose solution. Actively pursuing talent development and engaging in succession planning strategies early and often helps streamline the CEO succession processes, ensuring the best candidate is selected.
