CEO Succession Planning

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Some idealist Management guru once said that: “A good manager works to put himself/herself out of a job by training their replacement. While that may be somewhat appropriate for the upward moving middle manager, for the upper echelons of the C suite, the statement may be a bit naïve. Power in any form has a tendency to perpetuate itself. However, it is the duty of the board of directors to protect the interests of the stakeholders (not just stockholder but also employees and other stakeholders interested in the well-being of the company) by making sure there is a succession/replacement plan for all key operating positions-particularly the CEO. As a result, it is the duty of the Board to require that CEOs have a succession plan just as it is good business practice to have key man insurance.

Last year, the Board for CEO Succession Practices along with Hendricks & Struggles, produced a report on CEO succession planning in S&P corporate documentation.

The following chart shows the percentage of how many industry sectors actually had a published CEO Succession Plan.

http://www.metaopsmagazine.com/ceo-succession-planning/

Published CEO Succession Plan

CEO Longevity

http://www.metaopsmagazine.com/ceo-succession-planning/

CEO Longevity

Probably, when discussing CEO succession planning, we may think of the long-term grooming of selected staff such as in the case of Warren Buffet and Berkshire Hathaway. However, the data from the study surprisingly noted that the age spread between incoming and outgoing CEOs is rather narrow. This fact implies that many CEO departures are not related to longevity but instead on other performance measures. In which case, many companies have taken a hit on their stock prices once it is known that a CEO is leaving and there is no known replacement. Uncertainty is always bad for investors as well as company stakeholders such as employees and their families as well as vendors and other interested parties.

 

http://www.metaopsmagazine.com/ceo-succession-planning/

Tenure is getting longer

Outsider v Insider Succession

http://www.metaopsmagazine.com/ceo-succession-planning/

Outsider v Insider Succession

As companies become more global and complex, the search and training time requirements for an outside leader can become more expensive. It makes sense to have at least a “stop-gap” succession plan to help make changes at the top less disruptive. Moreover, employee morale is usually better with a known quantity than an unknown outsider. In addition, trying to recruit a superstar can be much more expensive than developing from within. However, this proactive approach requires the full cooperation of the sitting CEO with Board oversight. Indeed, all key positions should always have a succession plan either in force or in progress.

Danger of the Loyal C-Suite

Top leaders inspire loyalty, and it is not uncommon to see the exit of a CEO along with the top- level team. To be aware of the possibility of this happening, most Boards may not be close enough to assess the possibility. Indeed, the ‘Team Bailout’ may be a job security strategy for the C-Suite.

CEO successions accompanied by a major C-Suite Change

http://www.metaopsmagazine.com/ceo-succession-planning/

CEO successions accompanied by a major C-Suite Change

CEO Disciplinary Departure Increase

According to the study, CEO disciplinary departures in 2015 was 17% of all succession events. In 2016, that percentage increased to 29% -a 71% increase!

http://www.metaopsmagazine.com/ceo-succession-planning/

CEO Disciplinary Departure Increase

If we consider the Board as the top of the Responsibility chain of command, then it makes sense to avoid stockholder litigation, that succession planning becomes proactive and not reactive, and this should not be left in the hands of the CEO and the C-suite team to develop alone without Board oversight.

 

Additional Reading

Evaluating the CEO

Characteristics and Best Practices of Successful CEOs

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