For CEOs, the job is fast becoming one big revolving door, with one-fifth of the S&P 500’s CEOs leaving their positions since the start of last year. Many of those departures weren’t planned, either.
The turnover is a major reason why boards benefit from making succession planning an ongoing job, says Jane Stevenson, vice chairman of Korn Ferry’s Board and CEO Services practice. Even if a board doesn’t expect to replace its CEO anytime soon, having a deep internal bench of future leaders will enhance the odds that you are ready for whatever happens, whenever it happens. “If you do this right, your business will do better and you’ll be ready,” Stevenson says.
CEO succession shouldn’t be a one-off debate, but an ongoing discussion. It’s like chess, Stevenson says, in that the board should be thinking “multiple moves out.”
Experts increasingly believe that how a board prepares for leadership successions is ultimately one of the best measures of that company’s future. “Succession planning is a microcosm of how you run your business,” Stevenson says. A well-run firm will devote significant time and resources to methodically accomplish a strategy, she says; finding a new CEO and other senior leaders should be no different.
Experts say boards should be finding and developing the next three generations of candidates for the CEO and other key leadership roles. That means directors need to get acquainted with the organization’s rising talent outside of board presentations and other formal interactions. “Building leadership capabilities is complex and time intensive, and without ongoing focus the board will be caught short at the time it can least afford it,” Stevenson says.
Having a deep leadership bench within the organization affords the board options, especially if the CEO departs suddenly for health or performance reasons. It also can be cost-effective, since it’s often costlier to bring in an outsider to lead a firm than it is to promote from within. This type of ongoing succession planning involves a lot of work. Board directors have to establish the key priorities for the organization and develop a point of view on the organization’s unique challenges and cultural priorities. Then directors need to put together profiles that address the most important experiences, competencies, traits, and drivers for leaders of the future (or, if needed, right now). Directors also need to structure the board in a way that effectively manages a succession plan on an ongoing basis, such as defining who’s accountable for what decisions, deadlines, and measures of success.