Egon Zehnder
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From CEO to Chair?

Why professional succession planning deserves governance

Toward the end of their careers as CEOs, some leaders become interested in assuming a role on the board of directors or supervisory board of their current company. The question often arises of whether the outgoing CEO shouldn’t be named Chair straight away.

A look at past economic practice places the issue in a historic light: In family-owned businesses, at a certain age the senior family member would hand over the reins to the next generation – and this is still the case today. But often he or she does not withdraw completely, but instead assumes a supervisory, executive, and customer care function. The transfer of ownership can be uncoupled from the transfer of responsibility.

Today it can also still be a natural process – and stroke of good luck – when the ex-CEO moves to the supervisory board or board of directors and maybe even becomes Chair. For this to work, he or she must have the right background and – probably even more importantly – genuinely identify with the new role as Chair. This means not only the willingness, but also the resolve, to leave both operational management and a close supervisory role behind and to fully delegate decisions, even if they are of a medium-term nature. In principle, a Chair asks more questions than he or she provides answers or makes decisions.

Of course, the configuration of ex-CEO as Chair also has its pitfalls: A CEO who has been promoted to Chair will play a significant part in the selection of the person succeeding him or her as CEO. Accordingly, it can be difficult for the newly appointed CEO to break free and question the decisions made by his or her predecessor and – if necessary – amend them. In addition, members of the executive board, who may have previously been peers of the newly appointed CEO, can use their relationship with the new Chair to undermine the CEO's role. A Chair who was formerly CEO in the same company may also unwittingly tolerate greater levels of conflict with his or her successor than would perhaps be the case in any other situation. He or she might unconsciously harbor the thought that “If worst comes to worst, I can take my old job back...”

But how do such “unfortunate” CEO-to-Chair promotions of the kind described above even come about? Primarily when no regular succession plan and process has been established for the Chair and CEO positions. Such a process should follow clear rules, include value-based commitments to succession planning, and provide role profiles (consistent with corporate strategy) for these two crucial positions. Essential components of such role profiles include:

  • ideal background and professional experience of candidates (e.g. industry experience, international assignments, levels of responsibility, etc.);
  • required key competencies (e.g. strategic abilities, leadership skills, excellence in dealing with customers, etc.); 
  • information about personality and potential.

Based on these criteria, lists of possible external and internal candidates should be discussed periodically by the board of directors or supervisory board. These candidate lists as well as the underlying profiles should be revised regularly. In essence, this is about the governance of succession planning based on several guiding principles:

  • At an early stage, discuss whether a move by the CEO to the board of directors and into the position of Chair should fundamentally be possible, and what the pros and cons would be.
  • Define role profiles for both the CEO and the Chair of the Supervisory Board/
 Board of Directors; hold regular discussions about potential candidates (external and internal); periodically review both the profiles and the lists of candidates to ensure that they are aligned with the long-term goals and values of the company.
  • Agree on career development measures for internal candidates and, if possible, try to network regularly with potential external successors for the roles.

In corporations with an atomized shareholder structure, governance rules are usually expected to be more strictly formalized.

Such company-specific and company-driven governance seems to me to be more effective than detailed regulations, for example with “cooling-off periods” (the CEO has to wait for a year or two before he or she can move to the supervisory board or board of directors of the same company). Succession governance should not rule out any potential arrangement in advance. But it can help prevent “accidents.” It also makes sure that business decisions can be made according to professional standards and prevents the company from having to accept temporary “emergency” solutions. And it forces everyone involved to actively reflect on the objectives and processes of the most important personnel decisions at an early stage.

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