In Search of Excellence in CEO Succession

With chief executives’ tours of duty becoming ever shorter, choosing the right person for the job is a crucial function of any Board. Max Landsberg looks at how to manage a successful appointment of a new CEO.
Selecting the new CEO is one of the Board’s three most crucial tasks, matched only by a decision to merge or sell the company, or the selection of a new Chairman. Merely announcing who your next CEO will be can move the market value of your company by 5% or more, and research by Harvard Business School on the value of a great CEO suggests figures of around 15% of your company’s market value. Furthermore, the share prices of companies with successions that are unplanned typically underperform their peers by more than 2%. Yet this ‘bet the company’ decision is still often tackled too late, with no recourse to a contingency plan, and without the benefit of enough data. As a recent client commented, “there was less data in the process than in a footnote of a monthly Board pack”. To help Boards address this important topic, this article sets out the seven steps required for addressing a specific foreseeable succession need, and concludes with briefer suggestions for longer-range planning.
Seven steps to address an identified succession need
Our experience in working with clients on CEO succession suggests the crucial importance of each of the following steps:
1. Start very early
2. Engage all stakeholders in sequence
3. Define the selection criteria clearly
4. Explicitly decide on the mix of internal / external investigation
5. Assess the candidates thoroughly
6. Define the roadmap and development plans
7. Plan support for the eventual transition.
While these steps might appear simple, their effective execution requires careful consideration.
To read the full article, please download the PDF above.