CEO Succession Planning Getting it Right

Transcription

1 CEO Succession Planning Getting it Right 1

2 1. Ending the CEO succession crisis. a. Your organization s standard of living depends upon excellence at the very top. b. Organizations should be ready with a clear view of current and future needs and with carefully tended pools of candidates. c. Almost ½ of companies (greater than $500MM in sales) have no meaningful succession plan. d. Only 20 percent of HR executives are satisfied with top-management succession plans. e. Global CEO tenure is 7.6 years. Two of five CEOs fail within 18 months. f. What s necessary in CEO succession planning? i. A deep pool of internal candidates. ii. A living plan and process for making decisions about candidates. iii. Leading recruiters rather than recruiters leading you. 2. The challenge with outsiders. a. Greater risk because directors and top managers do not know them. b. Generally chose to do a job, but can they do the job? c. Outsiders resign at higher rate than insiders. d. Bad external appointments are expensive. 2

3 3. The challenge with insiders. a. Are they the best available choice? b. Do known quantities sail through a lax due-diligence process? c. Do social networks and psychological ties complicate the process? d. Can a functional area leader lead the entire business? 4. The challenge with CEO development. a. It s too lengthy and expensive to develop successors internally. b. Look at GE: 225,000 employees; Jack Welch finds 20 potential successors in 1993; 3 in 2000; Jeffrey Immelt chosen as CEO. c. We count on CEOs to hold the job 10 years. Most take the job at age 50. When does development begin? d. Does HR rely on a packaged database of leadership traits? e. Is leadership development aligned with strategic goals? f. Do candidates stay in a job long enough to live with consequences? 5. The challenge with boards. a. 40 percent call involvement in CEO succession less than optimal. b. Packed agendas add to the challenge. c. What experience do search committees have? 3

4 d. Can we be seduced by reputation? Do we focus on what a candidate is like instead of what he or she can or cannot do? e. Can recruiter due-diligence be superficial? 6. The challenge with recruiters. a. It can be a concentrated industry. b. In the absence of effective direction, we may get a boilerplate. c. Do we know the financial history of the candidate s business or department? d. Are sitting CEOs really the best candidate? 7. How to succeed at succession. a. Who, in your ranks, might one day be CEO? b. Prepare with position progression with more complex P & L responsibility. c. Create projects or small organizations that exercise P & L muscle. d. Oversee executive development as a full Board. e. Get to know your rising stars. 8. The important of fit. a. Identify, in precise terms, three or four aspects of talent, know-how, and experience that are non-negotiable. b. What are dominant needs now? What are needs for future growth? 4

5 c. Can they grow your business organically? d. Can they build a strong executive team? e. Non-negotiable criteria let directors keep control when working with recruiters. f. Engage in a vigorous discussion of your candidates comparative merits. g. Seek reliable external sources and demand candor. h. Let the outgoing CEO (if possible) take a consulting-only role. The decision belongs to the board. 9. Building a development engine. a. Leadership development and evaluation begins the first year of employment. b. Have units identify high potentials and get the list to HR. c. Deploy three leadership tracks local, regional, and global. d. Give assignments that: Stretch abilities; Expand knowledge; and, Expose to many markets, cultures, consumers, and circumstances. e. Bolster your leaders connection to the company. f. Tie managers reviews and compensation to leader retention. g. Connect directors with leaders in all areas. 5

6 HIRING A CEO: CONVENTIONAL VS. PROGRESSIVE PRACTICES Hiring the CEO is, possibly, the Board s most vital task. In the end, the CEO drives strategy, implementation, and results. Boards should recognize that, when hiring a CEO, they must take steps to employ the CEO who is best for their company. This involves using progressive practices to sort out many capable existing or lying-in-wait CEOs and locate the right CEO. The Need for a CEO The Job of the CEO The Talent Pool for CEO The Candidates for CEO Hiring the CEO Supporting the CEO CONVENTIONAL PRACTICES Hire only when necessary Succession plans are ad hoc Concerned about hiring a CEO rather than the right CEO Unaware of company attrition, succession, and recruiting Rely on generic competency models Headhunters provide list of skills Look primarily for charisma, general ability, and track record Ad hoc approach to finding candidates Limit pool to existing CEOs Look for only external candidates or internal candidates Rely on headhunters for advice on proper CEOs Settle on first satisfactory choice Look continuously for ideal choice Go with gut only Include many bureaucratic steps Use shapeless interviews Conduct insufficient reference checks Assume money is everything Show too little commitment to candidate s success Discuss only positives of the job Fail to involve C-level leaders in discussions Assume new hire is plug and play Provide scarce support and mentoring PROGRESSIVE PRACTICES Ongoing analysis of future needs Continual evaluation of potential CEOs Regular forecasts for the company s talent needs Define specific demands of the job Specify exact skills and experience Consider how company culture affects the role Define success measures for CEO Build a large pool of candidates Include insiders and outsiders Use industry network and involve external partners Focus on who can do the job. Look for those with proven results. Could be an EVP-level leader. Use high-caliber interviewers Employ rigorous behavioral interviews Conduct thorough reference checks Include top stakeholders in candidate evaluation Rely on results, not reputation. Express working support for candidate s interests Describe the job practically Involve full Board, not just HR Ensure compensation is fair Involve C-level leaders Use veteran top performers as mentors Make sure newcomer checks in regularly with Chair, Board, and HR 6

7 As you evaluate your CEO in the future, on a scale of one to five, what is your conclusion about the following? No Yes 1) Did the company perform well financially and competitively over the past twelve months? 2) Do you expect the company to perform well in the next twelve months? 3) Do you expect the company to perform well in the next three years? 4) Does the company have a competitive advantage? 5) Is the forward-looking strategy strong? 6) Is the CEO focusing on the right issues? 7) Is the CEO changing the company appropriately? 8) Does the CEO have an edge in execution? 9) Is the CEO growing professionally? 10) Do the CEO and Board have a strong, mutual relationship? 11) Is the CEO developing a pipeline of leaders and potential successors? 12) Is the CEO s team high quality and working well together? 7

8 Copyright 2012 by Jeff Rendel All rights reserved. No part of this publication may be reproduced, transmitted or stored in any form or by any means without the prior written permission of the author. 8