In a report this year on senior-executive succession planning by Stanford University and the Institute of Executive Development, only 25% of 20 companies surveyed indicated having an adequate pool of candidates ready to move into key C-suite positions. Less than half agreed or strongly agreed that their organizations have a formal process for actively grooming successors for top leadership roles.
Those findings come on the heels of an earlier survey of 140 CEOs and directors by Stanford and executive-search firm Heidrick & Struggles International Inc. that put the average time needed to find a permanent replacement for a CEO at 89 days.
It’s risky to let succession planning slide, executive-search experts say. They say not having somebody in place when the CEO decides—or is forced—to leave can lead to reduced performance and a drop in shareholder confidence.
Don’t wait for a vacancy to start looking. Start the search for a successor the day the new executive starts. Today’s volatile markets, rapid technology changes and even burnout due to mounting public pressure can result in the need for a quick change in executive leadership.
Last year, 42 chief executives in the S&P 500 announced that they were leaving their positions, according to a report on CEO succession practices by the Conference Board, a private research group. From 2000 to 2013, about 11% of chief executives on average stepped down annually, the report found.
Do align succession planning with compensation. According to Matteo Tonello, managing director of corporate leadership at the Conference Board, having C-suite executives equally share compensation and operational duties allows them to develop and possibly become internal successors to the CEO. Stock-based compensation that vests over the long term, meanwhile, helps retain potential successors who might otherwise be tempted to flee for greener pastures. Some companies base CEO bonuses in part on how well they plan for succession.
Don’t look in the rearview mirror. Companies that are performing well have the tendency to pick successors who have behaviors and attributes similar to the current chief executive. The best candidate, however, is someone who is aligned with the future business strategy, not the present or the past.
And because business needs change frequently, so too should the pool of potential candidates. There is no guarantee that the anointed successor won’t leave, so it’s always good to have a rolling and updated list of candidates who could eventually fill top positions.
Do look for social-media skeletons in the closet. Perform a thorough background check on potential candidates, and make sure it includes social-media outlets such as Facebook and Twitter.
According to Thomas Flannery, leader of the board-services practice at executive-search firm Boyden: “When you’re in a public company, there really isn’t any privacy.”
Don’t keep succession plans A secret. Corner-office transitions can be risky, so reassure stakeholders yours won’t be rocky by including details of the succession plan in regulatory filings, the Conference Board says. Things to include: roles in the succession process, an outline of the company’s career-development program and a description of selection criteria.
Do consider soft skills. Because chief executive officers need to be able to understand and work with different types of people, it’s important to look for candidates with mental agility and empathy—skills that will make them well-suited to today’s rapidly changing global business environment. It is about leadership qualities, as well as the ability to leverage empathy to motivate a wide variety of constituents, says Jeffrey Cohn, a partner at Heidrick & Struggles in New York.