Over the last two years, there has been a common finding from the Board Performance Reviews we have conducted. CEO Succession Planning or ‘Sudden’ CEO Succession Planning has been low in scoring and has constantly shown where Boards have needed to pay closer attention.
In most cases it has been around a sudden departure by a CEO. Where the complacency has been by Boards, is to look at this area and think ‘well we will just go to market, simple’. Ultimately this may well be the answer, however most CEO searches can take between 3-6 months to search, recruit, select and start in a CEO role. Often the biggest time gap is waiting for a CEO to give notice and depart from their current role. This period can be exasperated even further by an event taking place during the Christmas period.
Boards often find themselves having to look internally for an interim CEO and this can place significant pressure on the remaining executives and also create a longer term cultural problem within the organisation if we fail to prepare. A sudden CEO departure should be on any organisations Risk Register/Matrix under ‘Key Person Risk.’
The most common solution we have recommended is around ensuring good communication. We often find that a Board’s Remuneration and Nomination committee, or a Governance and Risk committee has actually had conversations around a sudden CEO departure. Then when we seek out the commentary and feedback from the whole Board, we find differing comments from ‘its all good and everything is in place’ to comments like ‘we haven’t spoken about this, and it is of concern to me’. Let’s be clear about this, whilst we as a Board may delegate part of the recruitment process of a new CEO to a Board committee, we must not forget that such a decision should be taken by the Board as a whole and therefore input and updating of progress to the entire Board is required.
The whole issue around a sudden CEO departure can be quickly improved upon by one simple action. During a Board in-camera session, invite the CEO in to discuss the issue. The simple question to the CEO is ‘if you were to depart suddenly, what do you suggest we do in terms of an interim replacement?’ This simple question allows the Board to better understand which Executive team members are capable in the CEO’s view, and able to step up to such a role for an interim period of time. If the answer from the CEO is no-one, then you have just uncovered a significant risk within the business. It is the CEO’s role to develop the Executive team below them, to provide exposure to the Board, to provide development opportunities to them in preparation for such a time.
The Boards role is to have oversight of this area and to ensure the CEO is acting to build capability within the team. Ensuring the Board has exposure to the Executive team can be another weak spot. If all of the information flowing to the Board is only coming via the CEO, then that can be another ‘red flag’ for a Board to be concerned about. But ensuring the Board has exposure to the Executives is a critical part of better understanding the capabilities of the executive team.
Should there be a recommendation from the CEO, then the Board needs to have agreement on whether they believe this Executive is the right choice. Whilst there is no need for anything in writing or to be minuted by the Board, it is important to try and find some form of agreement. The choice of such an interim CEO needs to be carefully considered as it can have longer term implications for the organisation. For example, an Executive member who felt they should have been selected as the interim CEO and wasn’t, starts looking at their own career progression. Next, the Executive who was selected as the interim CEO, puts their hand up for the actual role during the recruitment process and is not selected, now they start also to consider their future within the organisation. Suddenly, we are in an Executive re-build and a significant amount of IP could be heading out the door, i.e. a CEO and two Executives. This is a critical element of the Boards work that needs attention.
Lastly, there is the role of the Chair and the Board as a whole. Firstly, in these types of scenarios, the Board may need to take on a greater role in terms of operations. It may be one of those occasions whereby the Board needs to be ‘below the line’ to ensure operations are functioning well. Secondly, the Chair must step up, lead the Board and if necessary, ensure the interim CEO has support and guidance when needed. The Chair then needs to ensure effective communication is flowing back to the rest of the Board.
If the Board gets the communication right prior to a sudden CEO departure, if it acts in advance and determines a clear pathway forward, then it has done its job and any form of emergency can be negated quickly. Naturally, the Board would still need to meet and discuss, make a formal recommendation and take into account any other market impacts that may give the organisation higher levels of risk, but ultimately taking preventative action and having a preliminary discussion will often place the organisation in a much better position to deal with a sudden CEO departure.
Finally, to reduce the impact and risk of a sudden departure of your CEO, consider including CEO Succession Plan in CEO KPIs. Also, you could schedule an annual review of CEO Succession Plan by the Nominations or Governance Committee.
If you would like to discuss this article, please contact VUCA Director David Spear david.spear@vuca.com.au