How to succeed with CEO succession

Iconic Australian company Woolworths has had its approach to succession planning scrutinised in the public domain recently as a result of the sudden resignation of its chief executive.

It's hardly the first time succession has been under the microscope - indeed there's been several instances since, both in Australia and offshore.

If a board of directors' main responsibility is the good governance of the company whose shareholders it serves and if one of its most important jobs is the selection of CEO then a planned and thoughtful approach to succession planning is critical.

"There are five basic stages that ideally will take place over a two to four year period."
Jonathan Harvey, Succession and talent management advisor to boards and CEOs

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What should boards do to ensure shareholders' interests are protected through an effective CEO succession plan?

The first piece of advice is not to overcomplicate things. There is almost as much written on succession planning as there is leadership and a review of the literature, in addition to taking weeks, can lead to eye strain and confusion.

In my own research and experience, including work with the Centre for Leadership Succession in Australia, there are five basic stages that ideally will take place over a two to four year period.

The key is having the chairman, the board and the incumbent CEO working hand in glove on the development and execution of the internal succession plan.

Stage 1: analysis

This involves a discovery exercise where the board, ideally together with the incumbent CEO, envision what challenges the next CEO will face and therefore what the desired experience and capability profile of the next CEO will be.

Obviously this will depend on the likely timing of succession, the evolution of the company and anticipated market conditions, but it would be fair to say it is rarely the case the ideal future CEO will look exactly like the incumbent.

Stage 2: assessment

Once the profile of the future CEO is agreed it is time for the board and CEO to identify a small number of internal executives who could potentially be made ready in a two to four year timeframe.

Provided the succession process commences early, which is ideal, these people don't need to be 'ready now' and in fact it's better they have room to develop.

Generally the board or CEO will speak to these executives to ascertain whether they have a long-term interest in the CEO role and if they do (even if qualified interest) invite them to participate in a 360 degree leadership evaluation process against the agreed future requirements of the role.

Stage 3: development

This phase of the process depends somewhat on how much time there is before the succession event. If the process has begun three to four years out development can incorporate coaching as well as potential role changes and access to projects to build breadth, mentoring and where appropriate external leadership development in order to address experience and capability gaps and build readiness.

If the time between assessment and the succession event is less (say a year to 18 months) then readiness building will more likely involve targeted coaching around the most crucial gaps as well as building on strengths.

Stage 4: selection

As the transition or succession event approaches the board will usually take control of the process. More often than not these days the board will at least look in the external market and in many cases benchmark the internal contenders with the best the external market has to offer.

This may involve a full blown search but doesn't need to and will be up to the judgement of the Board in the specific circumstances at hand.

Much of the material written on the subject of selection suggests best practice is to invite the small number of internal candidates (probably three at most) to present their medium to long-term vision and how they would plan to execute it to the board.

Again this is not necessary and if the board spends a lot of time with senior management and knows their views on the business and has 'seen them in action' then the presentation step is not as critical. Allowing candidates to present their case however can certainly help with retention of unsuccessful candidates who at least feel like they were given an opportunity to 'state their case'.

Stage 5: integration

Once the new CEO has been selected the succession process is still only partially complete. What remains is the all-important on-boarding and integration of the new CEO, a process which ideally will be supported with dedicated coaching for at least their first 12 months in the job.

This is often prioritised for externally appointed successors but with internal successors the view can be "they know the company and its culture" and therefore don't need as much if any support.

This can be a mistake as the internal successor has unique challenges to navigate, including leading former peers and re-framing how the board and the rest of the organisation sees them. Dedicated coaching from an independent trusted source can be invaluable.

Following these five steps is not a guarantee of a successful leadership transition but it will certainly mitigate risk and materially contribute to the board discharging its arguably most important role on behalf of shareholders.

Jonathan Harvey is the former Head of Executive Development at ANZ and is now an advisor to boards and CEOs on the subject of succession and talent management.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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