The complex challenges new executives are expected to navigate make finding the right person more difficult.
What the board can do: making succession routine
Given the time it takes to find a new CEO, boards should be constantly preparing internal candidates for the role as well as keeping an eye on potential successors working outside the company, says Kerryn Newton, the managing director of corporate governance consultancy Directors Australia.
Assessing succession can be seen as undermining the current CEO, Newton says. The solution is to do it every year, as a routine matter.
“I recommend to all the boards I work with that they do it once a year,” she says. “Around October might be a good time to have the discussion – once the CEO’s performance review is completed.”
“It’s not sufficient to just contact an executive recruitment agency when the need comes up. That’s too subject to the vagaries of the market at a particular point in time. You need a pipeline of internal candidates.”
An advantage of having an annual discussion is it allows the board to stay on top of the professional development of executives and mid-level managers who might be potential successors.
“It allows the board to think, ‘Well, this person has potential, but they need experience in this unit, so we’ll move them there for a while’,” she says.
About two-thirds of CEO successions are internal appointments, and these appointments typically come from one of three areas: chief operating officers, sales and marketing directors, and divisional chief executives.
“They tend to be the best-qualified people for the CEO role,” Waterworth says. “Smart boards work with the people they have in these roles to make sure they’re as skilled as they can be.
“It’s also important boards have access to these people in the company. They shouldn’t rely just on the CEO, but have contact with the next level down of management. That’s good corporate governance, but it also plays into succession.”
Picking a new CEO is a board’s most important duty, and one leading companies put a lot of thought into.
But it’s often not prioritised at all times, Newton says. “I’ve seen so many companies caught short with it.
“Boards don’t always think it’s a burning issue. But it’s always a burning issue.
“There’s no reason your brand new CEO won’t be gone in six months.”
Myriam Robin is a reporter for SmartCompany and its sister site LeadingCompany. She has degrees in economics, international studies and journalism. She likes writing about businesses taking risks and doing new things.
