BUILDING A BOARD OF ADVISERS

Boards and CEO Succession

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Despite talk of "imperial CEOs," the average tenure for chief executives has steadily shrunk over the past decade. This trend, combined with the proven dangers of leadership failure, has made CEO succession issues a high priority for all boards, both corporate and nonprofit.

"Board involvement in the succession is quite new," observes Roger Kenny, of New York City-based search firm Boardroom Consultants. "Up until the big CEO firings of 1992 and 1993, like GM and Kodak, CEO succession was strictly an inside deal. But boards today are growing more and more involved."

Still, the incumbent CEO is expected to drive the succession process most of the time, and too much board involvement could be viewed as a problem itself. "Any CEO worth his salt will want to participate in succession. The worst thing that could happen is to have the board do the search alone, because that's an admission of failure [ for current management] ," says Kenny.

Case Study
The Michigan Credit Union League in the U.S. has a strong, board-based CEO succession plan that recently tapped David Adams as CEO. Proof that the plan is a priority: succession planning for his own successor was one of Adams's first tasks. "Every year I'm evaluated in part on our succession plan, which lays out a process for what happens when the CEO leaves, ideal qualities sought, how an interim president is selected, and the board's role." The latter includes forming a board search committee when needed to administer the process and work with an outside search firm.

Adams sees speed of CEO change as the biggest advantage to carefully spelling out succession events. "There's a lot of stress on the organization if the process takes too long." While he sees it as vital that the board take as much time as needed to make a final CEO pick, setting a selection plan that snaps into action quickly allows the board to put more time into deliberation and less into asking who does what.

Smart CEO succession planning takes a split route: the normal, gradual development process and a backup emergency plan. (The latter is what Winnipeg, Canada-based management consultant Ray Baushke terms the "if the CEO gets hit by an ice cream truck" plan.) Most succession plans look at the long term and too few, warns Baushke, consider the emergency scenario. His advice: Spell out who is actually in charge when an emergency strikes, and designate this leadership role by title rather than by name. "Concentrate on the position, not the person, and go in assuming the role is temporary. You just want someone to get you through the first day or the first week."

Long-term CEO succession planning involves "protecting the company's culture, mission, and long-term strategy," says Baushke. Even when a major turnaround is needed, bringing in a major butt kicker of a new CEO can endanger this culture. "I've seen disasters occur when the CEO tries to dump too much talent. Look at what happened at Sunbeam under Al Dunlap."

But a succession planning process that concentrates too much on inside heir apparents can also backfire. We've seen too may cases where succession politics at the top have made needed managers depart when it became obvious they weren't next in line. (Jack Welch has worked to shape a more open-ended process at GE, but then again, he has six layers of talent to choose from.) So it may be wise for the board and incumbent CEO to craft an excellent CEO selection process rather than handicapping winners in a horse race.

In its recent report on CEO selection, the National Association of Corporate Directors offered a few good tips for members of the board that reinforce this approach, among them:

  • Boards should set regular sessions with the CEO and executive committee on succession planning and executive development.
  • A board committee should have succession oversight among its formal duties. (Typically, succession plans are shaped by the compensation committee, but some boards are forming distinct succession planning committees.)
  • The board should stay informed on and evaluate potential succession candidates.
  • Ensure that board members have the skills needed to properly weigh leadership qualifications.
  • Seek outside input, including outside advice and industry talent benchmarking.

Copyright 1999 Ralph Ward's BoardroomINSIDER

Last updated: Jul 1, 1999




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