It is estimated that about 22% of companies are making a run for outsider CEOs (CEO’s from outside the company). While to the small entities this might not mean much, those that intend to take a similar undertaking have to go through a succession procedure to accommodate the new entrant.
The same is the case for companies that are also looking for local CEOs for replacement and even in emergency cases like dismissal or death. Regardless of the reason for a change of guard, one of the most critical goals of the company should be, is have a seamless succession plan in place.
Why you need a CEO succession plan
Before we delve into the intricacies of the succession plan and what can make or break it, you first need to know why you should have a plan in the first place. It makes the situation more relatable if you fully understand the risks that are involved while changing the head and potentially the face of the management.
A succession plan offers you the infrastructure that helps to drive the senior management team. Of course, this change will have a trickle effect right down to the junior management but this takes a bit of time. Having a succession plan will also help the leadership align itself with the demands of the institution.
A succession plan is not only for the benefit of the company and its employees but also the incoming CEO. By having a transition plan in place, you give the new comer a chance to assess their skills and contrast them to the demands of the company. They are able to adjust their priorities better to fit the new role that they’ll be undertaking.
Ultimately, the greatest benefit of having a succession plan in play is that it helps the management and the board to be on the same page. This is more so the case in terms of information flow and frequent contact between the members of the two managing bodies.
What Entails a Working CEO Succession Plan?
- Work on the foundation
There are a couple of steps that are involved in building the foundation for a proper succession plan. It is imperative for any such arrangements to be made before the actual succession takes place since some of the infrastructure requires time to be nurtured.
- Have a physical succession plan
The first goal should be to have a document that details the process of initiating new CEOs into the framework. The document should cover the situation for both elected and replaced leaders and how each should be chosen. To be on the safe side, it would also be a good idea if the board also has a clause for emergency cases like the demise of the CEO or incapacitation.
The said document should also detail the succession time frames and in times when the CEO has to be selected, it should be clear what the next leader should be like and the artillery they should have in their skill set.
- Measure performance and improve the progress
After a CEO has taken over, the board should review the succession plan and how well it handled the situation. It is also a good time for the team to seal any holes that might not have been foreseen prior to the succession. This ensures that in future, the succession plan is able to hold much better. The succession plans should be reviewed at least once every two years and adjusted to improve performance and transition.
- Create a talent pipeline
Every company ought to have a culture of development. This should not only be restrained to the executive team but should be about three ranks deep. It helps the company have a sustainable performance across the board and also helps to retain key talent. The said talent should be brought to the attention of the board through board presentations and other processes that the company might have in place.
It is also a great idea to source for talent from external sources and even competitors. If you’re going to have a flawless succession plan, you need to have the talent and experience to expedite the situation quickly and without hitches. The Human Resource department should keep an eye on any stand out performances and keep them in the company by molding them and constantly training them for improved performance.
- Cut down the applicants
With a succession plan, you definitely have a sea of applicants. This will include ones in the same companies and outsiders. With the help of the succession document created earlier, considering the demands of the company and the skill set and experience of the applicants, the board should list the finalists. Typically, this should be done about two years prior to the planned succession. In such a case, each of the applicants should be well versed with the institution and should have already been assigned key tasks in the company in that duration. This ensures that they get familiar with running the organization.
- Pick the CEO
You need to avoid the consequences of poor decision making as much as possible. Which is why the CEO selected must be as a result of thorough and in-depth assessment of each of the candidates. The board should have exhaustively covered all the grounds, done all the background checks and verified all the documents. In the same light, the board should also consider attributes that could be crucial to the company in future. Keep in mind that such attributes are not the easiest to spot.
- Manage the transition proactively
You now have the succession plan written down and documented and you also have your CEO at hand. In most cases, this is a transition that will usually be viewed as an event rather than the process that it is. Being a process, the experience and wisdom of the outgoing CEO are always welcome. In a well-managed situation, the outgoing CEO should show the new CEO the ropes and familiarize them with the vision they had. If this is not done properly, the result is a short, unsuccessful and tumultuous tenure.
- Assess the dynamics of the succession
In the last step of a functional successional plan for a CEO, the board has to address the dynamics of the relations between the new CEO and other players in the company. This should be done in a stage to stage process.
This also helps to assess the thoughts and the different actions of the executives that are directly associated with the succession. It helps to curb the usually conflicting positional power, fear and uncertainty that might grasp the related parties. It is more of an assessment to calm down the waters and ensure that everyone is on the same page by acknowledging and resolving such issues.
Successional wrangles are common and in more than rare cases are the reason why established institution come to sudden but painful death. Managing the proper succession line of a CEO is critical to the entire fiber of the company from the Board right down to the junior employees. Which is why there should be nothing left to chance when trying such a profound undertaking.