When well run and successful companies seek to strengthen their CEO succession plans by recruiting an executive outside of their organization, the risk of failure generally increases. Why is this? Because often the incumbent CEO will extend his or her target retirement date beyond the planned date, changing the script the future CEO was given when recruited. In addition, internal communications to the executive leadership team may be muted until which time the CEO heir apparent demonstrates superior performance. This can create a lack of clarity around expectations of the newly hired CEO prospect. Likewise, the future CEO candidate may be hired to fit the CEO’s direct reports’ compensation parameters rather than being increased to a compensation range between the peer group and the CEO. Therefore, the CEO heir apparent may be more of a long shot candidate without having enough of an established record of success.
As I reflect on recently and successfully completed heir apparent CEO searches, some valuable lessons learned include:
• In the employment agreement, the client should commit to a mutually acceptable timeline for the incumbent CEO to retire and the heir apparent’s to be promoted into the CEO role. If the client company or incumbent CEO wishes to extend the promotion date or the incumbent CEO’s date of retirement, the employment agreement should be revised to offer the CEO heir apparent the option to be funded a payout of one to two years of salary or to accept the extension.
• There should be at least six months to a year’s time to shadow the incumbent CEO and learn the new culture, meet the board of directors and key customers, and evaluate the CEO’s direct reports.
• Following the cultural immersion and CEO shadowing period, there should be a regular handoff of responsibilities from the incumbent CEO to the future CEO to gradually take on more scope of the CEO’s role while allowing for the retiring CEO to have more time to coach and observe.
• The Chief Human Resources Officer can be a key facilitator in ensuring a seamless transition of the newly hired President and the embracement of the coaching/mentoring role of the incumbent CEO. Since the CHRO is the steward of the corporate culture and has a firm understanding of the strengths and style of the incumbent CEO, the recent past business results, and the strategic goals, he or she is uniquely positioned to enable this succession process to succeed.
By following these useful suggestions from recent past CEO heir-apparent searches for successful, well managed organizations, you can ensure a smooth succession plan and avoid the pitfalls of a failed CEO succession along with the disruptive impact to the business, shareholders and other stakeholders.