A smooth transition
John T Montford and Joseph Daniel McCool explore the intricacies of the process of appointing a new CEO.
The induction of a new CEO into an organization is a process that should entail planning in advance, inputs from board members and a long-term, holistic vision keeping the organization’s interests on priority. John T Montford and Joseph Daniel McCool, in their book Board Games: Straight Talk for New Directors and Good Governance, talk about the ‘dos’ and ‘do nots’ in order to ensure that the induction process is smooth and efficient.
Much like with the game of international cricket, American football extends its legacy and lore through the language its players and fans embrace to describe a wide range of on-field game scenarios and play-by-play outcomes.
In American football, the quarterback is the most important player on the field when his team is on the offensive. It is his unique job to call the plays, signal instructions to his teammates and take the football as it is snapped and either hand it to the running back, throw it to a wide receiver or, occasionally, even run with it himself in the hope of reaching the end zone for a touchdown.
The same can be said for the role of today’s chief executive officers. It is he or she who is ultimately responsible for the company’s performance. It is the CEO who must be the chief architect of corporate strategy. It is the CEO who will make the biggest decisions about the investment of financial and human capital around the organization’s biggest business priorities. And it is the CEO who in many ways defines the culture of the organization,
serving as its public face, conscience, and values center in dealings with customers, industry influencers, competitors, employees and shareholders.
It is for all these reasons—and more—that companies of all sizes must be well prepared for the eventual hand-off of leadership from one CEO to the next.
In much the same way as an American football team cannot move the ball downfield if the quarterback fumbles or drops the hand-off to a running back and the opposing team grabs it, no board of directors can afford the uncertainty or potentially existential damage that could be caused by failure to prepare for or simply bungling the CEO search and succession process.
Make no mistake. There is no greater responsibility for any board or independent director than to ensure a smooth, well-executed plan for finding the right next CEO to lead the organization when questions about the future direction of the enterprise will be swirling.
Yet there are traps and snares that many boards, directors, and companies regularly fall into when it comes to CEO search and succession, causing damaging press headlines, shaking shareholders’ faith and confidence in the board, and raising troubling questions about the company’s future. The shame is that, in most cases, all these things could have been avoided with careful forethought and planning that often goes overlooked, until it is too late.
Consider these common steps to CEO search and succession and you will put yourself—and the enterprise you represent—steps ahead of the competition and insulate against such uncertainty and perceived organizational paralysis:
have a plan in place for CEO search and succession before you face a crisis of confidence
Dozens of studies in recent years have carefully chronicled the surprising—and unforgiveable—lack of corporate preparedness for CEO search and succession. Many companies still do not have a written plan and process, nor have their boards even discussed the topic lest it makes the CEO (who may also be serving as board chairman) uncomfortable about his or her own standing and, yes, even their mortality. If your company’s CEO advises you that he or she plans to stay on for another three to five years, that is good but it simply does not absolve you from your duty to develop a contingency plan (in the event of the CEO’s death, disability or anything else that would interfere with or prevent the execution of his or her duties) for search and succession. Your organization’s plan should be a periodic, formal part of the board of directors’ meeting agenda.
understand how the CEO’s role has evolved and what you would need to look for in an eventual successor
One of the biggest challenges facing any board or independent director is the realization that no one has effectively tracked the evolution of the CEO’s role since the leader who may have just announced his or her intention to leave, to retire, or to take an extended medical leave took the helm in the first place. It may well be that not a single soul in the enterprise has even looked at the job description for the CEO since the current officeholder was hired years or perhaps even decades earlier. So how could any organization effectively seek a replacement when no consideration has been given to the role’s most critical requirements? What your company needs is a steady set of hands that benchmark the CEO’s responsibilities, performance markers, compensation, and competitive analysis. This requirement should fall squarely on the chair of your board’s nominating and governance committee. In fact, it should be one of his or her top competencies and priorities no matter how long your incumbent CEO has been in office.
do not cede the succession process to the outgoing CEO
One of the most common mistakes for companies that have entrusted the role of CEO and Chair of the Board of Directors to just one person (thereby doubling the leadership transition risks) is to simply let that individual run the process for finding his or her successor. You might think it makes a lot of sense for the outgoing CEO to call the shots when it comes to finding a successor. Well, think again. It is you, as a director, who has a duty towards your shareholders to ensure the process is well planned, smooth, and not overly influenced nor directly manipulated by any one individual. If your questions about the succession process are met with, “Do not worry, I have got it all under control” from your outgoing CEO, then you better step in before things go off the track.
consider the engagement of an executive search firm that knows the competitive environment but which is not too close to your company’s outgoing CEO or sitting directors
It is likely, in the event of having to find a replacement for your current CEO, that your board will surface referrals by independent directors to potential candidates as well as to potential executive search firm partners who could potentially tackle the assignment. Too often, there is a rush to anoint a candidate with big-company credentials to the CEO’s post. There is, human nature and tribalism being what they are, often a rush to engage a search firm partner who is a close friend of the CEO, or someone he or she or perhaps someone on your board wants to reward for getting them their job, or a rush to engage a well-known search firm simply because it boasts lots of offices and consultants on a global scale. The truth is that the careful, well-planned selection and contractual engagement of a retained search firm to conduct the CEO search is a critical precursor to getting the CEO succession process right the first time. The quality of what you put into the process predetermines the quality of results you will get from it. Choosing the right search firm partner is serious business that should not be relegated to a handout to a golfing buddy or other social connection.
create an on-boarding plan to ensure the new CEO’s smooth entry into your organization
Handing over the mantle of leadership to a new CEO is about more than just making an announcement and making the rounds to introduce the new leader to the board and employees. The incoming CEO will likely bring or ask for a 30-, 60- and/or a 90-day plan for their introduction to the organization. He or she will attempt to understand the business opportunities and challenges and develop a plan for prioritizing those that need attention first. If they are smart, the CEO will also look for some ‘early wins’—projects or decisions that he or she can implement that will engender trust, build rapport, and telegraph the kind of leader he or she intends to be. This latter part is important, because the eyes of the entire organization will be on him or her for signals of what everyone should expect. If your board does not have a plan for integrating the new CEO, it should develop one. The incoming CEO will need access to information and will need to build the most important relationships first. Board directors can provide important inputs into what this process should look like and how it can be constructed for immediate impact.
The takeaway lessons are clear. Being proactive on the topic of CEO search and succession is critical. This is serious business. You are far better off making this your priority than leaving it to chance. ■
JOHN T MONTFORD IS CEO OF JTM CONSULTING LLC, AUDIT COMMITTEE CHAIRMAN OF SOUTHWEST AIRLINES, AND CHANCELLOR EMERITUS OF TEXAS TECH UNIVERSITY.
JOSEPH DANIEL MCCOOL IS CEO OF THE MCCOOL GROUP AND AUTHOR OF DECIDING WHO LEADS.
How could any organization effectively seek a replacement when no consideration has been given to the role’s most critical requirements?
Too often, there is a rush to anoint a candidate with bigcompany credentials to the CEO’s post.