Planning Smartly for CEO Succession

By Sandra Davis and David Nosal

Amid the most challenging economic environment of our lives, shareholders, investors, employees and now even the government are increasingly holding boards accountable for CEO performance. Never has it been more paramount to have not only the right CEO in place, but also a sound CEO succession plan.

Along with fiscal oversight, CEO succession planning is one of a board’s two most important responsibilities. Yet curiously, many boards struggle with this inevitable role. In 2008, the National Association of Corporate Directors (NACD) found that 42.4% of companies had no CEO succession plan at all. Further, the NACD reports that just 16% of directors believe that their board is effective at CEO succession planning.

While there are many reasons (see sidebar article) why companies may lack a formal succession plan, in our experience, the primary reasons boards inadequately plan for succession: because the subject seems far removed from the company’s day-to-day business, and they’re uncertain about what steps to take. Faced with this sense of non-immediacy and uncertainty, board members often either succumb to the temptation of doing nothing, letting precious planning time slip by, or react in a time of immediate need, hastily hiring a CEO who may or may not be the best fit.

The Need for a CEO Blueprint

Unfortunately, boards often inadequately define how a future CEO should drive corporate performance, according to consultants Jeffrey Cohn and Rakesh Khurana, in an article on succession planning in Directorship (June 2003). Boards often tend to think more of who to hire – potential candidates they happen to know – rather than of what qualities to hire – the needs of the organization applied to the skills of specific CEO candidates.
.
.
.

To read more, download the entire article.