Thomas J. Saporito Chairman & CEO RHR International

When properly planned and thoughtfully executed, CEO succession offers a company far more than just good governance and the transitioning of its top leader. CEO succession also enables companies to envision new opportunities for growth, realign and strengthen processes and systems throughout the enterprise, and propel companies to greater results in the service of their missions.

At RHR International, we have concluded that there are 10 Key Dimensions to effective CEO succession planning. Each of these dimensions must be maintained to ensure that the governance risks inherent in each leadership transition are minimized and the best outcomes are achieved. This will ensure that a board of directors is operating at peak effectiveness and efficiency and that its CEO succession planning program is, without question, a best practice.

1. Establish Board Ownership, Involvement and Oversight
This first dimension establishes and defines the fundamental mindset of the board. Due to the corporate accounting scandals at the onset of the twenty-first century and the collapse of the financial markets in 2007, investors and other stakeholders are insisting that boards be accountable for the CEO succession process.

Leo Mullin, former CEO of Delta Airlines and director of Johnson & Johnson, considers CEO succession planning as an opportunity for the board to influence the performance and future direction of the organization and, for that reason, insists that elements of strategic alignment and executive development be discussed at every board meeting. We concur and advise that an explicit, on-going process for managing leadership succession should be chartered in the board buy-laws.

2. Set Succession Time Frame
Several timing aspects should be considered: the expected departure date of the incumbent CEO; the time it takes to develop internal talent for the role; whether (and how long) the outgoing CEO should remain on the board; when to involve a search firm; and the transition time from one CEO to the next.

3. Prepare for Emergencies
40% of directors polled by RHR said they are not prepared for an emergency. A good plan considers multiple contingencies, looks at the top three levels, includes a communication plan and process steps. It must be more than “who will step in?”

4. Align on Strategy and Profile
Before discussing the “who,” the board must come to agreement about what the right next leader looks like. The key questions are “who – for what, when and how.” Once the criteria are clear and relevant, discussions of individuals – compared to the criteria – will be more systematic. The board must also create the process steps and clarify roles.

5. Build the Talent Pipeline
It is not enough to have “a” candidate. The board not only needs to know who potential CEOs are, but also who will be part of the leadership team and the identity of high potentials. Careful cultivation of talent and a good process can also help retain unsuccessful candidates.

6. Source External Talent and Manage Search Firms
Hiring from outside is more expensive. An outside CEO is also less likely to stay long term and has a higher risk of early failure. A good search firm can help identify candidates and benchmark your talent against best in class. However, the search firm cannot be allowed to take over the process.

7. Select the CEO
A fair and transparent process leads to the new CEO having more support. A thorough selection process depends upon a deep knowledge of candidates by the board members and insights from experts who are independent of the search. Since the board will live with their decision, all board members should meet the final candidate and ratify the selection.

8. Proactively Manage the Transition
After the selection, the work is only half done. The needs, wisdom, and experience of the outgoing leader need to be leveraged. The senior team needs to be “re-recruited, re-aligned, and re-purposed.” The integration of a new CEO must include the relationship with the board along with all key stakeholders. How the transition and integration of the new CEO is managed can greatly impact the entire succession endeavor.

9. Measure Performance and Improve Progress
Milestones to gauge how the new CEO is performing need to be developed and monitored. A vigorous, candid review of the entire process should be done, including key stakeholder input. If changes to any components of the succession process need to be made, they should reflect what has been learned and be done before the lessons fade.

10. Manage the Dynamics in CEO Succession
The devil in managing CEO succession is in dealing with all of the intra-personal and interpersonal dynamics attendant in each of the other dimensions. Issues of power, control, legacy, competition and ego can operate throughout all phases of a CEO succession process and significantly compromise the best outcomes. Great skill and sensitivity are required to effectively help incumbent CEOs let go, achieve a good director/CEO partnership and to manage the various interests of key stakeholders and candidates inside and outside the company.

PASSIVITY IS NOT AN OPTION
CEO continuity is an area of significant business risk. The costs of not getting the process right are 1) enormous, 2) both obvious and subtle, and 3) immediate and long-term. Expertise in governance process and organizational behavior, applied with rigor and independence, reduces the risk and increases the opportunity. The time and expense involved in creating and applying a solid CEO succession plan is an investment that will pay dividends to the company for years to come.