Once a chief executive succession plan has been activated, and a new CEO is appointed, the first part of the succession process is complete. The second stage—the transition—must then take place, with the all-important transfer of roles from the outgoing to the incoming CEO.
If this is not handled well by the board there’s a good chance that the planning and effort put into the succession process will not be a success and it may contribute to the failure of the new CEO to effectively transition into the business. In fact, according to some estimates, between a third and a half of all CEOs depart after 18 months, which is very costly for organisations, both in the short and long term. A poor transition process is a significant factor in many of these cases.
It’s only a well-thought-through transition strategy, devised and implemented by the board, that will help ensure the new CEO adds value at the earliest opportunity.
When the transition is handled well, the organisation is prepared for a new CEO with an agenda and strategy the board approves of. The new starter is more tuned in to power dynamics and how the culture will influence a strategy shift, or what cultural changes will be necessary to support it. Also, the transition delivers a path toward productive relationships between the CEO and key stakeholders—including, most crucially, board members.
The important question is: how can the board deliver a smooth and effective transition?
Engagement between the outgoing and incoming CEO
In a planned CEO succession, which often involves a retirement, the outgoing CEO should help the incoming one adjust to and understand the business.
Ideally nine to 12 months prior to the expected transition date, the outgoing CEO should share knowledge with their successor about the business, board, important organisational relationships and the business’s cultural attributes. The new CEO also needs to be briefed by the incumbent on the personalities of those on the board. This approach is particularly important if it’s an external CEO appointment, but must still take place even if it’s an internal hire.
Where the departing CEO and their successor are working alongside each other as part of the transition process, the roles for both must be clearly defined from the outset, so there’s no confusion.
The two leaders will need to agree on the details of their relationship, such as on what issues will they collaborate on? Do they want the board and the senior team to view them as true partners? Which decisions will the incumbent run by the successor? What milestones or phases will mark their progress, and will the transition of power and responsibility be incremental or all at once?
There must be real responsibilities for the successor from the start, with objectives closely tied to strategic and operational success, and a clear timetable for ascending to the top job.
It is up to the outgoing CEO, working closely with the board, to direct the transition process. They must remain fully engaged with their current duties and be responsible for short term performance, but they should also devote significant time to ensuring their eventual replacements’ early success.
Clarity on all aspects of the business
During the transition process the board, along with the outgoing CEO, must ensure that the new leader has clarity on the role of the business, current strategy and future plans.
Importantly, the new CEO must be clear on their role in taking the organisation forward, including desired outcomes. This requires confirmation of clear performance indicators for the CEO, so they know how they will be expected to steward the creation of value. If there is any ambiguity here the CEO is set for failure.
The CEO can then be judged on these performance indicators at regular reviews by the board, to assess their effectiveness, identify opportunities to develop, provide support and ensure they are “fit for the future”.
To ensure the CEO evaluation process delivers a vital 360-degree performance review, one that also provides an objective assessment, the board, chair and their direct reports must provide feedback on the CEO’s performance and development needs. This must involve qualitative and quantitative research based on interviews, and an online survey.
Onboarding and induction
Even today, it’s not been unknown for newly appointed CEOs and directors to be left with a box of reading material from the board, such as previous minutes from meetings, information on governance procedures, for example, and be expected to get on with the job in hand.
This is a sure-fire way for the induction and wider transition process to take a lot longer, or most likely fail—potentially leading to the premature departure of the new CEO.
Boards must understand that the onboarding, or induction stage, is one of the most important parts of the transition process. With many boards still operating in crisis mode and virtually due to the pandemic, it’s vital that the new CEO is able make a meaningful contribution to board deliberations from the start of their tenure. This can only be achieved via a formally structured “journey of learning” induction plan over 18-24 months. This includes a programme of visits and experiences, a buddy system, and governance training.
The chair, outgoing CEO, and the wider board, have a key role to play in devising the induction plan for the new CEO and ensuring its implementation.
Ongoing support and advice
Once the new CEO takes on all their responsibilities the board must not step away and leave them to it. There’s often a temptation to do this as an expression of confidence in the new leader, but this respectful gesture can have a negative impact on the transition process at what is a critical time for the business.
Most CEOs will need support and advice from the board to help them quickly settle into their role, so they can add value at the earliest opportunity. Of course, the board shouldn’t micromanage either—a balance is required.
The onus shouldn’t only be on the board to ensure a smooth transition for the new leader. The incoming CEO must quickly understand and engage with the board as a whole, and build and maintain strong relationships with all the directors. With the most important relationship in the governance system being between the CEO and the chair, it’s particularly key the CEO and the chair quickly build a professional rapport.
Then, at the appropriate time, the new CEO should engage with and start to build relationships with the company’s broader leadership group, key shareholders and stakeholders, to understand their perspectives and any concerns, including willingness to accept risk and change.
Many new leaders fail because there’s no or a limited transition process in place when what they need is ongoing advice and support from the board and departing CEO during this vital time. It’s up to the board to invest time in planning and implementing an effective transition process to help the new CEO to quickly add value, otherwise all their efforts in sourcing the new CEO could be for nothing.
John Harte is managing partner at consultancy Integrity Governance.