Is it Ever Too Soon to Start Looking for Your CEO’s Successor?

April 6, 2014

Is it Ever Too Soon to Start Looking for Your CEO’s Successor?

By Mathé Grenier, Principal and National Lead, Client Solutions

How soon after taking over the reins of an organization should the new CEO start planning for his or her replacement? If you’re A.G. Lafley, former CEO of Procter & Gamble, you start working on finding your replacement within weeks of taking the job.

In a detailed account of his ascension to the CEO’s role, published recently in the Harvard Business Review, Lafley noted that there was no formal CEO succession plan in place when he took over P&G in June 2000. However, after devoting the first 100 days of his tenure to revamping key business strategies, Lafley focused the attention of his board of directors on the issue of succession and leadership development throughout the organization.

Lafley took on responsibility for coaching and developing top executives within P&G to cultivate strong leadership capacity, which he knew was critical to ensuring the organization would thrive over the long term.  With an eye on identifying top candidates to replace him as CEO, he positioned the succession process as a shared responsibility between the current CEO and the board.  One of the board’s six meetings each year was devoted entirely to succession planning and Lafley ensured that the board got first-hand exposure to top CEO succession candidates without him in the room. He also provided the board with regular updates on the candidates’ development progress.

It was a difficult transition for a company the size of P&G. Lafley said the board bristled at the idea of spending four hours entirely on the issue of succession, especially when he had only been in his position for a few months. Eventually, however, P&G saw the light, positioning CEO succession as an extension of broader leadership development. “We elevated leadership development to the same level of importance as business strategy,” Lafley wrote in the HBR.

Lafley’s experience, lamentably, is the exception and not the rule in most organizations. CEO succession remains an awkward subject that is avoided by far too many organizations. A recent Knightsbridge research report revealed that 55 per cent of Canadian companies don’t have a succession plan in place. This is a troublesome trend given that CEO tenure is dropping – to as low as four years in Fortune 500 companies – and the gross majority of CEOs leave before retirement.

And yet, even with all that evidence of volatility, far too many companies – Hewlett-Packard, Bank of America and Yahoo certainly come to mind – have engaged in public and sometimes humiliating struggles to find CEOs in the obvious absence of a proactive, deliberate succession process.

If everyone agrees it’s an important issue that can define an organization with both customers and investors, why are so many failing? There is no one reason, but rather a convergence of issues that has made this one of the foremost challenges facing organizations of all shapes, sectors and sizes.

The Board and Chief Executive Share the Responsibility

Boards are certainly a big part of the problem. Most directors agree that CEO succession planning is a top board responsibility. Knightsbridge’s Beyond the CEO: The Role of the Board in Ensuring Organizations Have the Talent to Thrive, showed that 83 per cent of participants indicated that succession planning, particularly at the CEO level, is the board’s most critical direct responsibility. And yet, far too many of these organizations fail to put in place a formal succession process, especially in the private and not-for-profit sectors. The same study found that just 28 per cent of large not-for-profits surveyed had succession plans in place for all top executives, contrasted with 74% of large public organizations that had formal succession plans prepared.
In many of these organizations, the boards have very little experience designing and executing strategic initiatives like succession plans. This leaves far too many boards in a reactive posture, trying to put together a succession plan after it has been learned that a senior executive is about to leave.

The CEO’s Role

CEOs themselves are just as much to blame. Succession is still a taboo subject for many chief executives, who may fear that broaching the subject themselves will make them seem like a lame duck by their boards or key stakeholders. There is likely no other occupation group that so personally identifies with their jobs as chief executives. It is simply too much for many CEOs to contemplate the act of of handing off the baton to another leader who will take their place. This fear becomes a Catch-22 for many organizations: CEOs resist bringing up the issue, and boards are afraid to broach the subject, lest they incur the wrath of their chief executive.

In his book “The Corner Office: Indispensable and Unexpected Lessons from CEOs on How to Lead and Succeed,” Adam Bryant identifies “passionate curiosity” as one of the five essential qualities for CEO success. When it comes to a CEO’s role in preparing the organization for his/her succession, Bryant explains that there needs to be a passionate curiosity about the people around them. The current CEO needs to ask the right questions and learn everything there is to know about the current executive talent so as to determine who has the required capability and potential to lead the organization into the future if and when the current CEO leaves.

Mitigating organizational risk requires more than identifying a single “heir apparent” that is merely an extension of the current CEO.  Regardless of a chief executive’s current achievements, planning for the organization’s future success typically requires a redefined skill set, leadership style and strategic focus. The current CEO can gleam a certain level of understanding of executive potential through daily interactions with the senior management team, but deeper insight and “peripheral vision”  can best be found in comprehensive executive assessments, which enable a CEO and the board to truly understand untapped potential of executive talent.

Although both boards and CEOs share equally in the failure to enact a succession plan, it is the CEO who has the best opportunity to proactively remedy the situation. As Lafley demonstrated at P&G, a determined and dynamic CEO who is unafraid to tackle the succession dilemma will likely embolden the board to become more involved.

And the benefits of succession planning go well beyond keeping the chair warm in the CEO’s office. Effective succession planning is really just an extension of effective leadership development. It is a top responsibility of a CEO to actively look for top talent to strengthen his or her organization’s bench strength. There is no reason why that search should stop just below the top level of the organization.

So When Is It Too Soon To Find Your CEO’s Replacement?

The issue of when to start a formal CEO succession plan is still among the trickiest parts of this equation. There is really no way to start this process too early. It takes two to three years to fully identify, assess and develop legitimate “ready now” CEO candidates. Given the shrinking tenure of CEOs at many organizations, there is really no reason not to begin laying the groundwork for succession soon after the arrival of a new CEO.

CEO candidates will not only be top talents, they will be individuals who will need to be given new challenges, sometimes outside their chosen fields. This ensures they not only gain valuable experience on all aspects of the organization, but also that they have shown the ability to succeed in a wider variety of scenarios.

The most important point here is that succession planning must be an ongoing, deliberate, and transparent process. It must be baked into an organization’s culture, and featured prominently as a pillar of strategic planning. It is almost impossible to ensure the right person rises to the top if the organization is not constantly searching for, and developing, the candidates for succession.

Start the Conversation

There are certain steps that CEO’s and boards can take to enhance their oversight of human capital to mitigate risk and ensure their organization has the culture and talent it needs to be successful. Asking these questions is a simple way to get people thinking and talking about succession planning in a more formal and strategic way:

  • Is the CEO paying attention to building executive bench strength for the future and developing a succession pipeline of strong internal candidates aligned with the organization’s strategic direction?
  • Has the board worked with the current CEO to identify a shortlist of his/her potential successors? Are directors getting first-hand exposure to these candidates through regular interaction? If not, why not? What barriers exist, and how can they be addressed?
  • Does CEO succession have a legitimate and ongoing place on the board’s annual plan? Are board discussions on CEO and executive succession integrated with strategic planning discussions?
  • Is CEO Succession aligned with the organization’s leadership development efforts? Does the CEO succession process shine the light on the organization’s executive leadership bench strength? Have the executive cadre participated in executive assessment to provide deep insight into performance, potential and capability – at the individual and team level?
  • Does the board know the high potential executives and managers below the management team? Are there opportunities for high potential executives and managers to meet and interact with board members via board presentations, informal meetings, department tours, or lunches and dinners?
Previous Article
Why Are So Many Organizations Bad At Succession Planning?
Why Are So Many Organizations Bad At Succession Planning?

Why Are So Many Organizations Bad At Succession...

Next Article
In Conversation With Michele McKenzie, President and CEO of the Canadian Tourism Commission (CTC)
In Conversation With Michele McKenzie, President and CEO of the Canadian Tourism Commission (CTC)

In Conversation With Michele McKenzie, President and CEO of the...

Receive our thought leadership in your inbox by subscribing to our onPeople newsletter!