Choosing a CEO for the future

Choosing a CEO is the responsibility of the board and, arguably, its most important role.

The risky business of CEO succession

Korn Ferry Institute, May 2015

CEO succession starts with developing your leaders

McKinsey Quarterly, May 2015

ASX 200 roundtable summary paper 2015: Succession planning

Australian Institute of Company Directors, June 2015

Choosing a CEO is the responsibility of the board and, arguably, its most important role. Yet CEO succession planning is a risky process and often does not receive adequate attention. A McKinsey article, ‘CEO succession starts with developing your leaders’, claims that one in three CEO successions fail.

A recent report by executive search firm Korn Ferry, ‘The risky business of CEO succession’, reveals strategies adopted by boards in succession planning. The report includes interviews with 13 business leaders.

One of the key risks raised in the report is commencing the process of CEO succession without first agreeing on the strategy and market factors that impact the role.

Yasmin Allen FAICD, Director, ASX stated “The most substantial [risk] arises when the board doesn’t understand deeply or have consensus around the strategic direction of the company and what it wants from the company for the next five to ten years. A company goes through different life stages; it might be in a growth phase, a restructuring phase, or something else, and each of those requires quite different skills from a CEO.”

Brian Jamieson MAICD, Chair, Sigma Pharmaceuticals said “Commencing the [CEO succession] process without agreeing on the external strategy is high risk as companies change. It is essential that the chairman and board have a good discussion about where the company is at a point of time. Clearly your next CEO has to be aligned with where the company is likely to head in the next three, four, or five years.”

Mike Wilkins FAICD, CEO and Managing Director, IAG stated “If you don’t know what you are trying to do with the organisation then you don’t know what sort of person you want as CEO. Agreeing to an external strategy first does not mean that you have to drill down to smallest details but you need to decide the big things. If you don’t have the skills for those big things inside the place then you may want to look externally.”

CEO succession planning was also the subject of a recent Australian Institute of Company Directors ASX 200 roundtable. The summary paper states: “For the board, the first steps of the selection process are to articulate a clear vision for the future of the organisation and then identify the skills needed to achieve that. These change over time; however successful the current CEO, the board may need to look for quite different abilities and specialisations. It is very important to have this information in place before starting to talk about specific people.”

An important takeaway for boards is the need to be forward-looking in selecting a CEO. The best candidate will have the experience, skills, attributes and knowledge to enable them to drive the future strategic direction of the organisation, manage the organisational, market and competitive contexts over the coming years, and ensure that the organisation can achieve its future goals.