CEO Succession: How Your Board Can Make or Break It

Your corporate board can make or break your CEO succession – and the latest numbers show that many boards are still struggling with key aspects of succession planning. This year, RHR worked with Corporate Board Member to conduct research that would reveal the state of play with regard to board readiness for CEO succession. We found that:

• 71% of boards are regularly engaged in succession planning for the CEO and other critical roles.
• 69% have detailed emergency succession plans for the CEO and other mission-critical roles.
• 65% of boards actively oversee the growth of the organization’s leadership and talent pipeline.

While these statistics highlight progress from previous surveys, they also underscore that some boards are still struggling with their responsibilities.

The Crucial Role of the Board

The primary duty of any board of directors is to ensure their organization can maintain excellence in leadership through smooth transitions from one CEO to the next. Effective CEO succession involves proactively developing highly capable candidates who are prepared to step into the role, whether due to an unexpected event or a planned transition. Changing a CEO affects company culture, board-CEO relations, and stakeholder perceptions both inside and outside the business. CEO transitions are inherently disruptive, even under the best circumstances. Insights gathered from consultants over seven decades and various research initiatives reveal that while more boards are taking their responsibilities seriously, many still struggle with CEO succession planning.

Challenges to Successful CEO Succession

We’ve detailed below six challenges to successful CEO succession – and how you can address them.

1. Organizational Dynamics
   The gap between the importance of CEO succession and some boards’ preparedness can be attributed to several factors. The process is challenging and time-consuming, and it triggers a range of organizational dynamics that must be managed, including issues of power, ego, legacy, and personal agendas. For example, a special relationship between an influential director and a candidate can lead to hesitation among other board members. Denial or avoidance will not simplify the task. In short, while it is difficult and often messy, effective succession planning is crucial.
2. Underdeveloped Leadership Pipeline
   A recurring issue is the lack of qualified internal candidates. This shortage forces boards to look outside for prospects, which is often associated with shorter CEO tenures, higher compensation, and integration risks. While an external candidate might ultimately be the best choice given the business context, having to resort to this option due to insufficient internal candidates reflects poorly on the board.
3. Board Alignment
   Boards often face differing opinions on critical issues such as strategy, risks, opportunities, pace, and the ideal board-CEO relationship. These differences must be addressed so that the criteria for selecting the CEO are clear and mutually supported. Discussions often focus on “who” rather than “who for what, when, and how.” Aligning the board is essential and may take time and effort. Without it, board members can become polarized over their preferred candidates, leading to a power struggle and an ineffective process. Clarity, focus, and alignment are crucial predictors of a successful CEO succession program.
4. Insufficient Time
   Understanding the talent in the pipeline requires a systematic, long-term effort. Boards must identify and engage with key candidates frequently and deeply. Preparing internal CEO and C-suite candidates can take years, necessitating a commitment to ongoing development. Given the limited frequency of board meetings, it can be helpful to consider the succession process in terms of the number of board meetings until the expected transition rather than months or years.
5. Evaluation Skills
   Evaluating candidates requires special skills. Many directors question their interviewing abilities and tend to rely too heavily on resumes. Meanwhile, high-level candidates are often experienced interviewees themselves. Comparing an internal candidate with known imperfections to a polished outsider can be challenging. For this reason, directors often recommend using a robust process and expert counsel to ensure an effective CEO succession plan.

The Process Done Well

Successful CEO succession reflects six key outcomes:

• The board is aligned on the company strategy and the expectations for the new CEO.
• An effective CEO is in place, with a strong pipeline of internal and external candidates.
• The board’s reputation is enhanced, as the process is perceived as systematic, fair, and robust.
• Risks associated with CEO transitions are well managed and minimized.
• Highly talented individuals, including those who were not selected, are retained.
• Comprehensive plans for emergency succession are established.

Ideally, the succession process should restart the day after the new CEO takes the role, as an early start both defuses some of the potential dynamics and highlights necessary development experiences while there is still time to provide them. While boards have the ultimate responsibility for selecting the company’s CEO, in reality boards, CEOs, and CHROs all have responsibility for ensuring the organization is taking the necessary steps to build a robust pipeline of talent for the CEO and other C-suite roles. So, whether you are a board member, a CEO, or the CHRO, start the conversation. Initiate a succession process and stick to it. The earlier you act, the more prepared your organization will be.