The career of every CEO eventually comes to an end — sometimes earlier than they anticipated. Boards recognize the importance of planning early to replace their CEO. They’re also aware that they need to do much advance planning if they’re going to attract the type of talent that they need to edge out the competition and to keep the shareholders happy. Regular board meetings don’t provide adequate time to do the necessary legwork that yields a highly qualified CEO at the right time. Nominating and governance committees take on the task of finding and selecting the CEO successor. It’s a task that requires a proactive approach with advance planning. Nominating and governance committees work hard to fine-tune their process for succession planning, so they can present the best candidates to the board.
The general notion of when to start succession planning is the earlier the better, even as soon as a new CEO takes the position. In making their decision, nominating and governance committees need to consider the future needs of the organization, potential candidates from within and ensure they have a strong pipeline of candidates from which to choose.
Getting Off to a Good Start
Once a nominating and governance committee has selected a new CEO and the board has approved the nominee, some committee members make the mistake of feeling like they can relax a bit. The reality is that even a newly appointed CEO can abruptly leave the company at any time for any number of unexpected reasons.
It’s vital for nominating and governance committees to begin their selection process again right away and not procrastinate. Keep in mind that change is eventually imminent. Hopefully, many years will pass before the time comes again, but by starting early, the nominating and governance committees will be prepared to select a new CEO, even on an emergency basis.
Another challenge that nominating and governance committees face is getting over their feelings about pursuing a successor while a current, successful CEO remains in office. Nominating and governance committees, as well as boards, may be hesitant to initiate discussions about it. It helps to remember that the current CEO has a role in the succession process and may have valuable input about the qualities that will make a successful successor.
Early planning helps to set the expectations about the CEO’s role in the process right from the start. Nominating and governance committees should make succession planning an ongoing activity, as new candidates may be presented at any time.
Boards that insist on early succession planning will find that it provides them with many benefits. Early planning helps to minimize the emotions that inherently accompany succession planning. In addition, getting started early allows the committee to get to know potential candidates over time. Everyone involved will begin to see succession planning as a strategic plan rather than as an emergency reaction.
One of the purposes of the nominating and governance committee is that it provides the board with a way of establishing accountability for ensuring that succession planning is occurring on a continual basis. By delegating the task to a designated committee, boards can give the activity the time and attention that quality succession planning demands.
While nominating and governance committees perform the bulk of the work in succession planning, the committee should involve human resources and the board at various junctures.
Root Succession Planning in the Future Needs of the Business
One of the biggest mistakes that nominating and governance committees make is trying to find a carbon copy of the outgoing CEO. Focusing too much on the present needs of the company can easily set up a new CEO for failure before the person begins their first day of work.
Nominating and governance committees should approach succession planning with a forward-thinking mindset. Forward thinking requires identifying the issues that will be critical to the company’s future and looking for candidates who have strengths in that area. The biggest challenge in this area is trying to determine what the company’s leadership needs will be in five to 10 years. This approach will require committees to identify the specific effect they need the next CEO to have on the business and the skill set that’s needed to accomplish it.
Assessing Internal Candidates
Best practices indicate that nominating committees should be considering internal candidates before looking outside the company. Various issues make this a challenging task. While it’s difficult to assess internal candidates based directly on job experience, there are other ways for nominating committees to assess an internal candidate’s qualifications for the CEO position.
Part of the CEO’s job is having the right mindset. It’s critical for nominating committees to assess whether internal candidates have a mindset that is fact-based, rigorous and forward-looking. Having lower-level management experience may be an asset if the candidate understands the company’s developmental needs based on the future direction of the company. Nominating committees may evaluate their skills based on their track record for delivering against strategic and operational benchmarks that are similar to what the board will expect of them if they’re chosen for the CEO position.
Nominating committees can look at an internal candidate’s analytical capabilities, social intelligence, hard skills and soft skills to help determine their ability to serve in the CEO role. Employees may be able to validate the committee’s inquiries about whether a particular candidate can manage difficult situations professionally and how to help an individual develop talents to close any gaps in skills before the position opens up.
Nominating committees often assess internal and external candidates at the same time. This approach is a benefit because it gives committees the opportunity to benchmark internal candidates against external talent. It’s important for committee members to be frank about an internal candidate’s readiness for such an important position within the company.
Role of Current CEO
As the current CEO usually has board and management experience, the individual should be an active member of the selection team early on in the process. Current CEOs can help invigorate the process by identifying potential internal candidates, developing them and giving them room to grow. Current CEOs should step back as the nominating committee narrows their selection. CEOs will also need to take a step back emotionally as well, and manage their own emotions about leaving as the time for the change grows closer.
In summary, the nominating and governance committee takes the lead on the succession planning process. They should involve the board, human resources, the current CEO and possibly lower-level managers in the course of their work. Succession planning should be a standard, ongoing practice that begins shortly after a new CEO gets hired to prevent awkwardness and insecurities that affect present employees. Nominating committees should always consider that forward-thinking internal candidates may make the best future CEOs.