Successful Chief Executive Transitions ~ Part 1: Capturing Opportunities, Minimizing RisksBy: Paul C. Winum
Welcome to the first installment of our three-part series on successful chief executive transitions. In this initial post, we discuss how to minimize risks and capture opportunities with three stakeholder groups during a CEO transition. Part two will address the role of the predecessor, who has a significant part to play in the overall success of a new CEO’s transition. Our final post will offer suggestions on what incoming CEOs can do to help themselves through the transition period.
Executive integration is not a new topic, but research by RHR International shows that the process unfolds in a very specific fashion for the CEO position. How do organizations plan to support the new CEO? What are the ways companies can accelerate the CEO’s ability to drive the organization forward? Where are the potential pitfalls that should be avoided? And what can be done to increase the retention rate of new CEOs?
The fact is that failed CEO transitions are costly. Share prices can decline sharply in response to unplanned CEO turnover, let alone the considerable replacement costs. CEO changes are often associated with the exit of other senior-level executives due to disapproval of the incoming chief executive, loyalty to the old CEO, or changes to the brain trust the new CEO enacts upon succession. The increased ambiguity experienced during these times often leads to decreased leader and employee engagement and commitment to the organization. A well-planned transition program is critical to a smooth transfer of leadership, maintaining business momentum, and meeting stakeholder expectations. A CEO transition presents both significant opportunities and risks. Here is how to capture the opportunities with three stakeholder groups.
The CEO transition process is above all else an organizational event, comprised of the interplay of the CEO, his/her senior leadership team, and other key stakeholders of the company. All of these stakeholder perspectives must be addressed in an integrated, holistic manner for the transition to be successful.
For a smooth transition, the board, outgoing CEO, and senior management team (usually with the assistance of an HR professional and/or an outside consultant) need to help the incoming CEO build a solid foundation before he/she officially takes control of the position. Best practices during the preparation period include:
- Aligning with the board on performance expectations
- Due diligence on current state of operations and the culture of the organization
- Development of key messages for use once in the role (for employees, strategic partners, customers, etc.)
To establish priorities, begin with an assessment of the organization’s strategic needs, the CEO’s developmental needs, and the capabilities of the senior team.
According to a study conducted by RHR International and Corporate Board Member magazine, directors in hindsight generally have a favorable view of how well CEO integrations were conducted in companies they served. CEOs, however, do not necessarily agree with that assessment. Therefore, boards should make an extra effort to be proactive and deliberate in meeting with the new CEO. In a group and individually, board members should initiate contact and be intentional in their approach. An open-door policy is not enough. According to the RHR study, board clarity, alignment, and mutual understanding of how the CEO’s performance will be evaluated are all highly valued by incoming CEOs.
The most important issue here is having alignment between the new CEO and the board on the strategic imperatives going forward. Arranging frequent interactions between the new CEO and board members in which they share thinking about strategy (as well as their own personal experiences in the CEO role) will steer the new CEO from falling into many of the common pitfalls experienced during transitions.
The Senior Team
One of the CEO’s allies in a transition is a senior team that is aligned with and committed to the strategic direction, and which is collectively capable with the required mix of skills needed to execute on that strategy. For this reason, the new CEO needs to assess the senior team early in his/her tenure and plan to execute the necessary adjustments in a timely manner. Members of the executive team will need to be re-recruited and repurposed so as to drive the new CEO’s agenda. Making quick but informed choices about who may need to leave helps advance the alignment and focus of the senior team. Many CEOs we have interviewed over the years have said that something they would have done differently is replace executives who were not a good fit sooner in their tenure. So get your senior team set and on the same page as soon as feasible.
Part one of a three-part series: The next in the series will address the role of the predecessor, who has a significant part to play in the overall success of a new CEO’s transition.