The Board Director’s Guide to Managing the CEO’s Role in CEO Succession: Part 1
Courtesy of DDI 

How much should the CEO be involved in their own succession planning? And how can the board make sure they are doing a good job? Every board handles these questions differently, but every board director has a responsibility to maintain visibility and get the right data at every stage of the process.

A challenge that every board faces is visibility. In their duty to provide governance and oversight of management, it can be a constant struggle to gain unfiltered access to what is actually happening inside the organization, without becoming over-involved to the point of obstruction. Nowhere does this challenge present itself more vividly than in the board’s top responsibility: CEO succession.

Maintaining leadership continuity at the top is every board’s accountability, but there is tremendous variability in how boards and CEOs collaborate on this critical work, and how CEOs are monitored in their leadership of the succession process.

Indeed, the riskiest scenarios may be those in which the CEO and company are performing the best. CEOs in these cases (often board chairs as well) are understandably granted more latitude and face less scrutiny and pushback from their boards. But that approach can often leave unpleasant surprises for the board when the new CEO takes over.

The recent return of Bob Iger as Disney’s CEO illustrates yet another boomerang scenario in an ever-growing list of cornered boards who found they had no alternative other than to bring a prior CEO out of retirement. Results from these returning CEOs have been mixed at best, highlighting the obvious conclusion that boards don’t bring back former CEOs unless they have no other option. And when it comes to CEO succession, the absence of optionality is risk.

What’s the CEO’s Role in Succession?

Let’s be crystal clear: CEO succession is the board’s accountability, not the CEO’s. All boards should know by now that nothing can be taken for granted when it comes to choosing the next chief executive, no matter how high-performing the current CEO may be. The CEO naturally plays a leading role in facilitating the CEO succession process, but the board and shareholders are the customers, and the CEO must fulfill the assignment in a way that enables the highest likelihood of a successful transition.

Across thousands of CEO and C-suite succession decisions, I and my team have seen great variability in the dynamics between boards and CEOs in the succession process. In this short article I will highlight several of the most significant factors and questions that every board should tune into when creating and managing expectations for the CEO’s leadership of succession.

How Should the Board Manage the CEO’s Role in Succession?

I once observed the board of a large technology company asking the CEO (who was also the board chairman) a series of questions about CEO succession. One director asked about development of the COO, who was one of the top candidates: “Could you share more about your plans for their development?”

The CEO tapped the side of his forehead with his index finger, saying, “It’s right up here.” In other words, he alone knew the development plans and would be overseeing them himself. Not surprisingly, this wasn’t the answer the board director was hoping for, and appropriately so.

CEO succession is a multifaceted process of identifying successor candidates, assessing capabilities, providing developmental experiences, and evaluating readiness for the job. These phases evolve over time and require full collaboration and transparency among the board, CEO, CHRO, and succession candidates.

It’s true that the CEO plays the most pivotal role in facilitating that process, and typically the CEO’s judgments about candidate readiness carry more weight than others’. But boards must be cautious to not allow this to drift into an unspoken assumption that the CEO presides over all of CEO succession.

Questions the Board Should Ask About the CEO’s Role in the Succession Process

• Does our CEO communicate, solicit input, and build involvement from the board in all aspects of the CEO succession process?
• Is the CEO succession planning process the product of collaborative input and dialog with the full board?
• Does our CEO understand and act in a way that recognizes that succession is the board’s accountability?
• Is it clear that our CEO understands that the final choice of a successor is the board’s decision? 
• When does the board need to start planning for CEO succession?

In our experience, a significant portion of organizations that begin working on CEO succession are companies in which the CEO has been in place for less than one year.

Why?

Many CEO transitions are rocky. They may take too long, bring unwanted turnover in the C-suite, garner stakeholder criticism, or follow a period of poor CEO performance. In all these instances, the board prefers not to retread the difficult territory, and so the new CEO is asked to begin working on their own succession plan shortly after they sit down in the chair.

This is a healthy impulse. CEO succession is not simply a decision that takes place every 5-10 years. It is a permanent process in which organizations are constantly preparing leaders in ways that equip them if they are called on to fill a critical vacancy. This requires a constant sense of urgency, not an episodic one.

Conversely, when boards don’t start this process early, it can become increasingly difficult to do down the road, particularly when you have an iconic CEO who has little intention of handing over the reins. As a result, companies often end up with failed successions and boomerang CEOs.
 

In the next article, I will take a deep dive into list of questions that board members should ask in the CEO succession process, determining the Success Profile for your next CEO, and how should the CEO coach their potential successors for growth.

 

Matt Paese, Ph.D., Senior Vice President, Succession Management & C-Suite Services, DDI.