A smooth tran­si­tion

The Smart Manager - - Contents -

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.

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