Mission possible: managing CEO succession

03 11 2016

Mission possible: managing CEO succession

Even Julius Caesar had one. A succession plan, that is. So what’s yours?

CEO succession rates are rapidly accelerating. According to a PwC study, CEO turnover rates climbed from 11.6 per cent in 2010 to 16.6 per cent in 2015. Between 2007 and 2009, nearly 10 per cent of S&P 1,500 companies experienced a CEO succession yearly. And with retirement and M&A rates rising your company could soon be on that list – an Odgers Berndtson survey of Canadian executives revealed that 62 per cent of companies had no plan for CEO succession, and most other developed economies suffer from the same syndrome.

Getting succession right has been a problem for millennia.

When Julius Caesar was assassinated in 44 BC, he designated as his successor a relatively unknown and frail youngster, Octavian. This created such consternation that the Roman world was soon thrown into a civil war, from which Octavian emerged victorious after his defeat of Mark Antony and Cleopatra, changed his name to Augustus and ruled successfully until the age of 75.

Caesar’s succession plan encompasses many of the pitfalls of CEO succession today:

  • Keeping the process a closely guarded secret, without a clear process to ensure a smooth transition. Imagine if, like Caesar, you wrote the name of your successor on a piece of paper, sealed it in an envelope, and voilà, you’re done!
  • The absence of leadership development afforded to the chosen candidate. The hard part of succession planning isn’t so much identifying high potential leaders as it is to develop them for the CEO role.
  • The lack of attention to other internal candidates, in this case Mark Antony, who became so bitter that he defected to Egypt with his faithful legions. Likewise, the rift between internal candidates can often weaken or derail CEO succession, when it doesn’t have to.

Caesar’s decision sparked a rebellion that should have, by all calculations, brought down the Roman Empire. If Rome had been a modern organisation, it would certainly have been broken up or acquired. Augustus was able to hang on, in no small degree, because there was simply no other competing empire ready to pounce and take advantage of Rome’s dire situation.

Fast-forward to today, and to the challenges you will face in managing a CEO succession. Here are four practical tips that may help you prepare:

  • Think deeply, and honestly, about what your next CEO should look like. A common mistake is to look for a CEO with strengths similar to the previous CEO, when what you may need are different skillsets or capabilities. Get this out of the way early by asking every Board member to list the top five challenges they feel the next CEO will have to tackle, and by offering your own thoughts on the leadership qualities the next CEO will require. Make this dialogue with the Board a quarterly topic of discussion.
  • Invite senior team members into the process by providing them with a leadership assessment, and using that assessment as the basis for creating a robust development plan. Share with them the qualities you’ll be looking for in a future CEO, and explain where they stand against those.
  • Provide opportunities for potential successors to spend time with the Board, and to handle difficult assignments, like an M&A. Board and investor exposure is key to their growth and potential success as CEO.
  • When the time comes, lay out a clear communication that outlines the Board’s reasons for selecting the new CEO. Invite your Board to spend as much time with the unsuccessful candidates as the chosen one.

A classic case of CEO succession done right is how Jack Welch, who himself had been chosen to head up General Electric in 1981 after a thorough internal search, prepared his own succession. Welch started with a list of essential qualities an “ideal CEO” should possess, and sharing those with the Board. He interviewed the top 500 leaders across the company, and submitted a shortlist of 23 to the GE Board who appointed Jeffrey Immelt. He is still in the role today.

A final word: almost 40 per cent of newly appointed CEOs leave within their first 18 months. Regardless of how bright and competent your new CEO is, it won't hurt to provide them with an executive coach, at least for year one. The role of CEO is one that few people are prepared for. So many appreciate the added support once they finally step up to the plate.