When it comes to CEO succession, consultant Thomas Saporito argues the "devil is in the dynamics." The chairman and chief executive of RHR International in Philadelphia has been involved in more than 50 CEO successions, and also recently surveyed 236 corporate directors to get a better handle on what can sink turnovers of the leadership baton.
He has compiled 10 key dimensions to be alert to, but the one that stands out is the item he usually lists last: Managing the dynamics. "Even if you do all of the other things right, so many CEO successions are made or broken on the psychological dynamics," Mr. Saporito said in an interview. "There are 10 things to do, and do in the right sequence, but the grease between the wheels are the psychological dynamics of ego, power, money, trust, status, and communication."
Here are the 10 key dimensions, which he recently summarized in the Ivey Business Journal and elaborated on in an interview:
1. Establish board ownership
It sounds trite to suggest the board take responsibility for CEO succession, given its overall role. But boards often leave it to others, notably the existing CEO, who suddenly announces his retirement and chosen heir. Mr. Saporito said the board needs an explicit program to manage this critical responsibility – written into the bylaws – with a board committee given direct oversight duties. It's critical that the directors do not assign this duty to a sole individual or entity, whether it is the CEO, the chairman or a search firm.
2. Set time frames
From the moment a CEO is appointed, the clock starts ticking toward the need for a replacement. "The planning must be a constant, ongoing process that is managed as closely and attentively as any of the company's critical business issues," Mr. Saporito wrote in the Ivey article. At least five years before a new successor is needed, internal candidates must be comprehensively prepared for possibly taking the helm. Because boards generally meet only a few times a year, he suggests thinking of the succession process in terms of the number of board meetings until the expected transition, rather than in terms of months or years.
3. Prepare for emergencies
It's nice to have a solid succession process in place, but surprises can occur and the board must be prepared for an unanticipated, sudden need to replace a CEO. Yet 40 per cent of the directors he surveyed aside their company was not prepared for an emergency succession. Make sure your business is not among them.
4. Align strategy and profile
Before deciding on the next leader, the board must decide what kind of leader is required. It must agree on the strategic direction of the company and on the requisite capabilities to lead it into. This is trickier than it might seem, and often the source of succession mishaps. "At the end of the day it's about the right fit with the strategy and the company. It's not getting the best 'athlete.' Too often directors push for having a person with exceptional accomplishments but that individual may not be the right fit," Mr. Saporito said in the interview.
5. Build a talent pipeline
The board must ensure a culture of development not only for the current executive team but also for two or three levels down, with meaningful assignments handed out to develop potential candidates and regular reviews of their progress. "In a corporate culture that has not developed a pipeline, an unplanned departure of a CEO will always force a sudden and superficial assessment of executive talent and prompt an external search. It will also create a competitive, untrusting environment from which an unprepared CEO will most likely emerge – and most likely be rejected," he wrote in the article.
6. Manage the search firm
Often a search firm is used to bring in external candidates. He urges boards to take care in reaching for external talent, because they usually cost significantly more, are less likely to stay long term, and have a higher risk of early failure. Make sure the search firm understands your culture, board, and strategic direction.
7. Select the CEO
Make sure you conduct an in-depth assessment of every candidate, comparing them with the profile developed of the leadership skills and character traits expected of the successor. "Given the difficulty of knowing what skills will be most important in the future, critical attributes that transcend any situation are critical. These include integrity, trustworthiness and sound character," he wrote.
8. Actively manage the transition
The effort doesn't end with the selection or announcement of the new CEO. "A lot of good CEO successions fail because the first year isn't thought through. Right person, wrong transition," Mr. Saporito noted in the interview.
9. Measure performance
The board must watch the CEO's first-year performance, to identify any problems that need rectifying, and also must review the succession process itself, to prepare for down the road.
10. Manage the dynamics
Throughout the succession process, the board must be alert to the emotional dynamics. He said that this can be "insidious stuff," and that in the many successions he has been party to, there had not been one where these psycho-dynamics didn't arise. "The devil is in the dynamics."
Special to The Globe and Mail
Harvey Schachter is a Battersea, Ont.-based writer specializing in management issues. He writes Monday Morning Manager and management book reviews for the print edition of Report on Business and an online work-life column Balance. E-mail Harvey Schachter