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CEO Succession Planning (Part 2) – Strategies to Get it Right

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Martin Crapper.

DIRECTOR

16/08/2023

There is no denying the impact that selecting a new CEO has on a company, which is why CEO succession planning is so important. With proper planning and execution, CEO succession offers a business far more than just the transitioning of its leader. It enables organisations to envision new strategic opportunities for growth and realign processes and systems throughout.

Choosing a CEO is one of the biggest decisions a board can make, and getting it right is crucial. However, it is not enough to simply select a willing individual, as a company’s success is heavily reliant on having a CEO who is equipped to deal with whatever the modern market can challenge a business with. Regardless of business type and industry, boards need to have a CEO succession strategy plan in place, ready for when it is time for their departure.

At the most basic level, the CEO’s role is straightforward: driving management succession at senior levels, including the early identification of any inside CEO contenders, ensuring that the organisation is developing succession-ready executives for all senior roles.

CEO succession is a long-term undertaking. It’s not just about finding a single suitable person—it’s about setting up guidelines, processes, search, training, mentorship, and monitoring that will provide businesses with a sustainable pipeline of leadership prospects.

For this, the board needs to be aligned on a forward-looking character and skill specification which will inform the selection and development of potential employees. Here are some strategies to get it right.

Strategies to Get CEO Succession Planning Right

  • Start Well in Advance of a Planned Succession – Ensure that the entire board is aligned on future potential CEOs, focusing on those who are driven by the business strategy. This is a process that should happen long before a planned CEO succession, to ensure everything is in place. By involving the entire board, it is possible to highlight the short and long-term business objectives, before deciding on desirable CEO competencies and personal attributes. Thus, creating a comprehensive CEO profile, which can serve as a blueprint for appointing a future leader.
  • What Characteristics to Look For - No two companies are the same, and while many elements will be similar, not all will. Every business should create its own bespoke leader profile to determine the core competencies required. The CEO that may suit one company may be misplaced at another and the profile largely depends on the company, technology, market segment, and trading model they will be facing at the time. However, there are several universal traits you’ll want your next CEO, MD to have. Most importantly, they must be someone people will respect and trust. They must also have:
  1. Vision
  2. Critical thinking
  3. Adaptability
  4. Honesty
  5. Communication and presentation skills
  6. Ability to inspire
  7. Fortitude for decision making
  8. Transparency
  • Look Beyond the Next CEO - A board should always be two or three steps ahead of succession, and Directors should look beyond the next CEO. CEO succession is an ongoing process and having an idea of who is in the pipeline is key. As well as preparing leaders for the potential promotion of becoming CEO, companies should also look further down the ranks and highlight individuals who have future leadership potential. Often, internal candidates are the backbone of strong succession planning. Around 68% of current FTSE 100 CEOs were appointed through internal promotion, up from 46% in 2019. The succession planning process should ideally highlight a conveyor belt of fantastic internal talent that will be able to sustain a business for years to come.
  • Tailor Development Plans to Individuals - Prepare potential future CEOs with a combination of on-the-job training, intensive coaching, mentoring and education. Consider allowing the successor to work alongside the current CEO for a period, easing the transition. Instead of focusing on finding a single future CEO, identify multiple capable successors. It is important to create individual development plans that address both the candidates' specific needs and the company’s future leadership requirements. Potential successors eventually turn into serious contenders for the role, fill critical gaps in their skills and experience, and prepare them as much as possible for a CEO position.
  • Consider Industry Benchmarks and CEO Potential - Evaluate potential CEOs based on industry benchmarks and executive potential and consider the CEO profiles that have previously been established. It is important to have a clear understanding of an employee’s strengths and weaknesses, factoring in relevant competencies and experiences, as well as any personal traits that contribute to their potential for success. A balanced scorecard incorporates input and feedback from top-level executives down to the front-line employees to set goals in the areas such as;
  1. Financial performance
  2. Operational efficiency
  3. Customer satisfaction
  4. Employee satisfaction and engagement
  5. Revenue growth
  • Succession Planning Should Be an Ongoing Task - CEO succession planning should be an ongoing part of the board's agenda, as this ensures that it’s a continuous and evolving process. CEO succession planning should be continued even after a new appointment. As potential CEOs can emerge from various levels within the business, a board should stay informed about individual development plans. This makes sure that the company's future leadership requirements can be fulfilled, and highlights if external recruitment is needed.
  • Development Plans Should Be in Place for Unsuccessful Candidates - Not all the considered candidates will be successful. However, this does not mean that they aren’t fantastic talent that deserves to be developed and given solid progression opportunities. To retain internal talent and stop them from going to competitors, ensure parallel development paths are built for the candidates not chosen for the CEO succession path, so that they feel supported and appreciated, and like they have different opportunities for success. And even if they’re not ready for immediate succession, they may still turn into strong candidates for future succession cycles.

There are a variety of CEO succession planning strategies available, allowing a board to find an approach that works for the individual organisation. Succession planning is not a ‘quick fix’ or something that should be taken lightly. To ensure the right CEO is chosen, careful planning and execution is needed.

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