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CEO Succession

Succession Planning Process

High performing companies make succession planning a high priority. It’s an important responsibility of the Board and the CEO to investors, clients and employees. Succession planning is an evergreen process: it should be initiated in earnest, with progress reviewed on a regular basis. Importantly, the process should be flexible enough to allow for necessary (and sometimes major) course corrections.

When approached correctly, succession planning follows a five-step process:

  • Definition of CEO responsibilities and qualifications vis-à-vis the company’s strategy.
  • Identification and assessment of internal candidates and design of management development plans for each individual.
  • Establishment of timetables for the execution of each internal candidate’s management development plan.
  • Assessment of each candidate’s performance within the context of the management development plan.
  • Identification and tracking of external candidates with high succession potential, as a safeguard in the event that no internal candidates rise to the occasion.

Overview

It is the obligation of all companies, especially those which are publicly-traded, to develop and execute a succession planning process. It is a process best quarterbacked by a group of independent directors/trustees, aided by substantive CEO involvement. These individuals should carefully and objectively determine the position description of the next CEO, outlining the person’s responsibilities and priorities as well as defining what constitutes a suitable candidate background.  The position description should take into account the sector in which the company operates as well as its “evolutionary stage.”

Internal candidates, generally at least two and no more than three, should be identified and assessed. Personal developmental plans need to be formulated for each candidate.  These plans must take into account the breadth of the person’s functional experience, as well as their business management acumen.  Typically orchestrated over a five-year period, each candidate’s progress and growth needs to be monitored and managed. 

The Board must have the internal fortitude to drop a candidate who is not continuing to grow and develop. The Board should also regularly review the CEO’s position description, so that each candidate’s personal development is continually aligned with the company’s strategic direction.  Finally, as a safeguard, it is prudent to profile the company’s ten to fifteen leading competitors and identify successor candidates among this group. There is always the real possibility a company will have to reach outside for its new leader! However, a thoughtfully designed succession planning process will minimize this potentially disruptive event.

In summary, succession planning is one of the most critical responsibilities of any Board. It is also important for the CEO, whose stock awards will vest upon retirement, since the company’s stock price will be a direct reflection of investors’ confidence in its new leadership. Furthermore, all CEOs wish to leave a respected legacy. A company that continues to grow and be successful is probably the greatest testimony to the leadership of the former CEO. Last but not least, a thoughtful succession planning process will contribute to a strong culture, one in which the best and brightest rightly believe they have a chance to assume a major leadership role.

Contact FPL Advisory Group today to see how our CEO Succession Planning services can help.

 
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