CEO succession planning is a critical component in your business strategy and a shared responsibility between the current CEO and the board. Whether or not your CEO is planning to leave any time soon, creating a formal succession process streamlines collaboration, fosters alignment, increases efficiency, and mitigates risk. Some organizations create a master document with objectives, responsibilities, and schedules for succession activities.
Although there is no one way to do CEO succession planning, the Salo Advisory team has developed this 5-step model to guide our clients.
1. Create future CEO criteria
Long before discussing possible CEO candidates, the board and CEO should agree on the essential future CEO capabilities. Gaining alignment among directors on CEO attributes can be a challenge, but it’s worth the effort. The development of future CEO capabilities starts with asking several simple questions such as:
- How will the organization be different in 3-5 years relative to revenue, market positioning, customer set, geographic locations, size, location, and culture?
- What are the CEO capabilities necessary to drive the long-term strategy?
- Which of these capabilities are non-negotiable?
- How strong is the preference to have an internal successor versus an external candidate?
2. Build a talent pipeline
After identifying the CEO criteria, it’s time to identify potential internal CEO candidates and start preparing them for the job. Ideally, the organization can provide a mix of on-the-job learning, relationship building, and formal training—specifically designed to around each candidate’s strengths and weaknesses. For example, the candidates could:
- Be assigned challenging assignments with decision-making authority
- Get exposure to many areas of the organization through collaborative projects/rotations
- Present to members of the organization regularly
- Interact with investors and other outside stakeholders
- Join an external peer organization or attend leadership conferences
- Have 1:1 sessions with c-level executives or mentors.
3. Assess internal candidates
No matter how experienced an internal candidate is, becoming a CEO greatly increases the complexity of their work. Even if the candidate is a known top performer in the organization, it’s important to take time to thoroughly evaluate their ability to take on CEO responsibilities.
Performing comprehensive evaluations for internal candidates will help the organization:
- Understand candidate readiness (and what skills they may need to develop),
- Compare the internal resource to other candidates, and
- Eventually allow the board to make a confident decision.
4. Benchmark against external talent
An effective CEO succession process includes external benchmarking to compare external candidates against internal successors. This benchmarking is typically done without notifying candidates to preserve confidentiality. Doing an external benchmarking every two years also helps inform the development of and readiness of internal successors against external candidates. It also helps the organization “keep an eye on” potential external candidates as their careers progress. Then, about six months before a timed succession, external candidates should be considered in earnest—even if the organization has good internal options.
5. Provide onboarding support
Onboarding is critical. Once a final candidate has been selected, give the CEO a strong start with a thorough transition plan. Remarkably, 40% of senior leaders fail within 18 months of assignment. This failure is most often due to an inadequate onboarding process. Even internal candidates who know the business still need to get acclimated to their role and learn about the business in a new way.
Need help with your succession planning effort? Salo Advisory can help you succeed—whether you’re just starting a succession planning process or you’re stuck somewhere in the process. We have the experience, tools, and processes to get you to the right candidate for your organization’s future. Contact us to learn more.