How to Structure an Effective CEO Succession Plan
One of the most important strategic risks that a Board of Directors must effectively manage is the succession of the CEO. The Board must clearly understand the technical knowledge and experience necessary to lead the company and the context and priorities of an effective succession planning process, which is the responsibility of all Directors. Our speakers will focus on the role that the Board of Directors must play by:
- Ensuring that the CEO has an appropriate long-term perspective for creating value and, is an internal and external advocate for transparency
- Understanding internal and external talent and C-suite bench strength, as well as the effectiveness of development programs
- Analyzing the growth drivers, challenges, external threats, risk profile, immediate priorities, as well as the company’s culture
NACD NJ PROGRAM
HOW TO STRUCTURE AN EFFECTIVE CEO SUCCESSION PLAN
On January 21, 2016, Kurt Landgraf, former CEO of Educational Testing Service (ETS), Upjohn Company and DuPont Pharmaceutical Company, and Frank Gatti, Chapter Board member and Board member of H.S.Grace & Co. and The Conference Board, discussed a topic they called the most important job of a Board, but also one that is very frequently the worse thing Boards do: Filling the position of CEO. In the process they detailed the lessons they each learned from firsthand experience, good and bad, living through CEO successions at ETS, DuPont, Ikon, and The New York Times.
A good succession plan starts with ingraining succession as part of the corporate culture. A company should have a well thought out development program for more junior executives who someday might be under consideration for the CEO position. This usually involves a senior leader training a subordinate so that they he or she can be in position to take the leader’s position should the need arise. This is not always a comfortable proposition for the leader, so linking the leader’s incentive award to developing subordinates as possible successors is a key Board consideration.
Succession planning in a nonprofit can be hampered by the fact that the typical nonprofit does not have much in the way of “bench strength” at senior levels. Frequently, a nonprofit with great fanfare will announce a nationwide search for a new CEO. This is usually an indicator that the Board is not aligned in its thinking about a possible staff successor. Bringing in an outsider who may not fully understand the nonprofit’s culture may unnerve members, so member communication as the process unfolds is key.
Experience shows that the more famous an incumbent CEO is, the more likely it is that the Board will make a bad decision in the succession process. The Board is highly likely to defer to the incumbent’s judgment and choose someone just like the incumbent, when the best interests of the company may clearly call for a change in style or policy, not just who has the job. Another danger is letting the process drag out too long in the attempt to find a “clone” of the incumbent. This frequently results in many valuable senior managers leaving while the uncertainty continues. The lead director who is not the CEO may be the ideal point person to drive the process.
It is especially important for a Board to look at external candidates when the Board is divided or dysfunctional and where the process is likely to be political and personality driven rather than rational and data driven. In such a case, there is a danger that the process will be managed by a small clique of directors with their own loyalties who will leave their colleagues in the dark as the process unfolds, presenting them with a fait accompli at the end. Each director should insist on interviewing each of the serious candidates directly so that each can cast a well informed vote, rather than deferring to a search committee.
Sometimes a director will be convinced that the ousting of an incumbent CEO is necessary while his or her colleagues have yet to reach the same conclusion. In those cases, the best course would be for the director to initiate private one-on-one dialogue with colleagues, rather than risk a showdown at a Board meeting.
Sometimes the process of choosing a new CEO should be driven by a change in corporate strategy first, but sometimes the right successor is needed in order to point the way to a new strategy. At bottom, CEO succession planning is situational. One size definitely does not fit all.
Location and Time
APA Hotel Woodbridge (formerly Hotel Woodbridge at Metropark)
120 S. Wood Avenue
Iselin, NJ 08830
Breakfast: 7:30 a.m. - 9:30 a.m.
Frank R. Gatti.
Kurt M. Landgraf.