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The business world is changing faster than ever, and so are CEOs, whose tenures are now typically just three to five years, according to the latest Korn Ferry research. Around 11% of newly appointed CEOs leave their posts within the first year, with approximately a third departing by the end of their third year in the role.
How your company deals with these CEO resignations or removals within this volatile environment will ultimately define its success. “How you manage your CEO succession is how you manage your business,” says Jane Stevenson, Vice Chairman, Board & CEO Services at Korn Ferry. It’s a simple statement—but one that’s been shown, time and again, to be true.
Traditional CEO succession planning is a short-term proposition. Boards that want to ensure a smooth CEO transition try to identify a potential successor before the current CEO steps down. The theory is that when the time comes, that person can seamlessly step in their predecessor’s shoes. But this approach often fails.
“A client came to us recently because they had just one option in their organization for their next CEO. Unfortunately, that person left,” says Stevenson. “As a result, they had no suitable options within the organization.” This limits the Board to a list of under-developed internal candidates who haven’t received the right coaching and mentoring to prepare them. And without a strong internal candidate, the race to find a suitable external candidate takes much longer and leads to a leadership gap.
But there is a way to ensure stability at the time of transition, no matter when it arises. By cultivating a group of potential new CEOs long before the current one departs and throughout all levels of leadership, companies can handle these transitions seamlessly. We call this CEO progression; a long-term process with a multi-generational view, where people at all levels are being assessed as potential CEOs, in the near or distant future. CEO progression sees the cultivation of diverse talent embedded into company culture and organizational DNA and aims to prevent exactly the kind of situation as the company in the example above faced.
“CEO progression is an ongoing process that starts the first day of a new CEO’s tenure and continues to the first day of the next CEO’s tenure,” explains Stevenson.
Featuring good strategic planning, wise governance and a focus on skill-building of the right internal—or in some cases, external—talent, it gives Boards multiple pools to choose from when the time comes.
Progression is especially sensible in an ever-changing business climate, when no one quite knows what challenges lie around the corner. Boards are able to develop a range of possible CEO candidates with different strengths, experiences and mindsets—each one of which can effectively address different business priorities in the years ahead.
There are clear and definite steps Board members can take in making CEO progression a core feature of their business. We call these the five A’s.
Individual Board members might have a wish list of what they want in the next CEO, but objectives need to be aligned.
“I joke that we often think about what we want in a CEO the same way as we think about our coffee. Some like it with cream and sugar, some without,” says Stevenson. “And the same is true for preferences for the characteristics and experiences that different Board members want in the CEO. But we need to put personal preferences aside and instead focus on the business outcomes that are needed.”
Agree as a Board on the strategic priorities for the future, and align on scope and urgency.
It’s simple enough to see where possible candidates are in their career development, but it’s more important to judge their future potential. Look beyond their past experiences and instead assess their mindsets, drivers and motivations. Identify diverse talents who have the agility to form and transform simultaneously in different ratios, to meet various possible business eventualities.
Once you’ve assessed candidates, don’t stop there. Help unleash their potential by moving them into new roles, either to address any experience gaps they might have or to give the board more visibility into their abilities as leaders.
Addressing mindsets or behaviors that could derail the business in future can be even more important than filling experience gaps. The Board, current CEO, and CHRO should continually assess the progress these individuals are making.
When the employment market goes through huge shifts, such as with the Great Resignation, it’s vital to understand the external landscape and compare how your company’s leadership potential stacks up against competitors.
Cover yourself for all eventualities by cultivating relationships with high-potential successors in the marketplace and, where possible, acquiring talent for developmental leadership roles. “This gives you succession pipelines outside and inside the organization simultaneously," says Stevenson.
Even when developed and eventually selected, no internal candidate will be 100% ready for the challenge and public scrutiny of a first-time CEO role.
Put support mechanisms in place to assist with the transition, including a team of complementary leaders with whom the CEO shares trust and common purpose. It’s the interconnectivity between the entire team that will build value for the company.
By implementing these five A’s, Boards can make CEO progression part of a business’s DNA, leading to long-term stability and dynamism.
But it’s important to keep this progression process continual. In fact, Stevenson recommends cultivating at least three generations down the line, as you could easily see two CEO changes in as little as six to seven years.
The success of CEO progression as a whole depends on it being embedded into your organization’s culture. Progression planning isn’t separate from your business agenda—it is your business agenda.
By prioritizing an effective and smooth CEO transition years in advance, you’ll be ensuring long-term stability and, ultimately, profitability. You won't be leaving anything to chance. As Stevenson concludes, “When you have a seamless transition, what it means is that you’ve done the hard work in advance.”
Read more on preparing leaders for the C-Suite in our article, 7 Ways to Build Your Company’s C-Suite Leadership Pipeline.
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