One of the integral responsibilities of the board of directors is choosing the right CEO for the company. Directors must carefully weigh and discuss this decision, keeping in mind the company’s performance needs and actively planning for succession. The integrity of the CEO is essential to a strong company relationship and enabling the board to meet its expectations. The board of directors and the CEO work closely together in monitoring and managing the company; thus, boards must wisely choose a CEO who exhibits the same company founding principles and with whom they can work well with. If done successfully, this can lead to a wonderful symbiotic relationship of strength and leadership. However, if done poorly, the lacking communication and trust between a CEO and the board can present the downfall of a company.
Qualities to look for in a good CEO
A strong and capable CEO is one who is committed to the long-term value growth and success of his/her company, as well as someone who is receptive to the robust oversight of the board and willing to collaborate in effective teamwork. A well rounded set of analytical skills, social awareness, and communication skills is a key criteria to selecting qualified candidates. Beyond this, the board must have a well understanding of the company’s development needs and future direction in order to identify executives who will be able to fulfill their role amid these complex and ambiguous dynamics. Being able to forecast the challenges that potential CEOs may face is a helpful component in recognizing areas for improvement early on and establishing benchmark goals. Addressing these future challenges head on will provide boards and executives ample time to assess the readiness of each candidate, develop workshops, and establish mentor relationships to guide the company towards future success.
In addition to setting company-tailored criteria for CEOs, boards should maintain awareness to external benchmarks for executive success. Understanding how other company’s executives are performing is a good way to assess the relative strength of internal candidates. According to The Conference Board, between 2013 and 2016, the proportion of “internally” appointed S&P 500 CEOs grew from 76% to 86%. It is clear that boards are increasingly placing an emphasis on internal promotions, so it is well advised for boards to have an accurate and up-to-date overview of where their internal candidates stand against proven executives outside of the organization.
Finally, the board should include the incumbent CEO’s opinion during this consequential decision making process. Talking to the CEO about their experience in the role, what challenges they faced, and what areas they see for improvement moving forward is a good method for addressing future criteria needs. The incumbent CEO plays the important role of grooming succession-prepared executives at the senior management level and will thus likely have suggestions for who they think is a good fit.
Long-term succession planning
It is never too early to start thinking ahead about what the next CEO’s profile should look like. With the ever changing market and social landscape, an organization’s needs are also constantly evolving. Wise boards will try to foresee these changes and predict what the next step in company leadership is. What will the future of the company look like? What leadership skills and personality traits will be advantageous to navigating that future? How will or should company culture change? What kind of leader is able to promote that change?
Discussing these possibilities and building a consensus on a general criteria for the next CEO is an important step that facilitates a smooth transition process. Having a broad leadership profile in mind will help boards to develop needed leadership qualities among internal candidates and keep an eye out for executives whose strengths match these needs. Furthermore, it will prevent companies from falling into the trap of selecting repetitious candidates reminiscent of the incumbent CEO.
If concerns about the current CEO’s conduct, ability, or actions arise, they should be brought up and discussed immediately to determine if an early succession is required. Thus, having a sense of strong backup candidates is a smart way to stay prepared for any leadership scandals, emergency vacancies, or interim management. This ensures that issues with the CEO’s performance are caught early on and do not manifest in the company’s performance.
Getting to know the management team
Developing a forward-looking approach to seeking executive talent involves getting to know the senior management team. Directors and managers are both well-served by maintaining a mutual relationship of trust and understanding. Directors are endowed with a clear insight into what it takes to conduct key business decisions, and managers benefit from the ready ability to draw upon the independent judgement of directors.
Getting to know management comes in various forms, from conducting executive meetings to annual talent reviews to regular outside engagement. Staying involved with management on a continual basis will enable board directors to observe patterns of performance, identify the strengths and weaknesses of executives, and develop a more tailored approach to succession planning. It also gives boards the opportunity to expose senior management to opportunities that encourage entrepreneurship, leadership, and intelligent risk-taking in order to establish preparation for a healthy “succession culture.”
An assessment of the best succession planning processes noted that the top companies all exhibited several key commonalities:
- Continual discourse between board members and the CEO to discuss the future outlook of the company and the needed skills of likely successors
- Frequent exposure of senior levels to the board and fitting outside board service opportunities
- A simultaneous top-down and bottom-up approach in which all levels of the organization are equipped with the right tools and training for advancement while maintaining an eye out for successors
As long as boards fulfill their objective oversight duty, the board and management teams should operate hand in hand and build upon each other’s roles to create a robust succession framework that fosters the company’s long-term success.