This piece originally appeared in Harvard Law School Forum on Corporate Governance Managing.
Managing CEO succession has always been one of the most critical responsibilities that boards shoulder. With daunting stakes, they must carefully orchestrate everything, from articulating what they need in their future CEO, evaluating candidates, to managing a range of delicate dynamics.
As if those challenges were not enough, multiple societal forces have converged to make the role of CEOs far more complex than ever—with implications for both the attributes of future CEOs and how boards manage the succession process. The seeds of some of these forces were planted some time ago, but their combination is now effecting profound changes. We now live in a vastly more transparent and viral world. The shift to “stakeholder capitalism”—significantly augmented in 2020 by the Covid-19 pandemic and social unrest—has dramatically expanded expectations on corporations to respond to issues beyond core business matters. In fact, the 2021 Edelman Trust Barometer reveals that public trust in societal institutions is at historic lows; business, in contrast, is perceived as more ethical and competent. Against this backdrop, the pressure is on CEOs to step in and fill the void that governments and other entities have created.
Companies need the right CEO to navigate this “VUCA” world characterized by heightened volatility, uncertainty, complexity, and ambiguity. Boards must work harder than ever to ensure an excellent CEO succession process and manage the communications surrounding the transition well.
Succeeding at succession now demands excellence in both the fundamentals and in the supporting communications.
In terms of succession fundamentals, boards can maximize their chances of achieving an excellent transition by following four guiding principles:
- Design a dynamic CEO profile: First, boards must align on the critical attributes sought in the next CEO based on a company’s evolving strategic and organizational context. Given the uncertainty that many companies face, it is valuable to factor in multiple succession scenarios and desired profiles.
- Build in optionality: A diverse set of options will increase the possibility of having the right person for the right time and context. Not only should boards consider the most likely successor(s), but they should also consider talent who, while a longer shot, might be appropriate under different circumstances. A longer time horizon enables the discovery and development of multiple internal candidates.
- Weigh potential vs. experience: A Spencer Stuart study on “Why Rookie CEO’s Outperform” highlights how past experience is not always a reliable predictor of future success. A balanced assessment of potential and experience is crucial.
- Plan for CEO+ succession: Boards should also play an active role in broader leadership succession and development efforts so the organization has a robust talent pipeline and the future CEO has a high-quality top team on which to rely.
In recent years, a Fortune 100 technology company that selected an “unexpected” leapfrog successor found its stock price double over the course of the new CEO’s tenure. In this case, maximizing optionality by casting a wide net and betting on potential won the day.
In parallel, boards must get five key communication aspects right to win support for the CEO transition and minimize disruption:
- When: Boards should integrate communications planning – a critical component of the succession process – right from the start.
- How: Boards should carefully assemble a specialized communications team, with clarity around who will lead the effort, what capabilities and resources are needed, and what the company should do in the event of leaks and other contingencies.
- Who: The communications working group must assess all potential stakeholders impacted by the transition, understand their motivations, and tailor messages to achieve desired impact.
- What: Taking proactive measures to allay stakeholders’ potential concerns will instill trust and confidence in the transition. Key steps may include:
- Leadership: Get a pulse check on the new CEO’s top team and, if appropriate, reenergize internal candidates who, while not selected to become CEO, are critical talent to retain.
- Employees: Address workplace stability, organizational trajectory, and what the new CEO may mean for employees’ sense of opportunity and purpose.
- Media: Anticipate reporters who may be hyper-focused on exposing disruption or discord behind the scenes.
- Investors & analysts: Communicate what may change vs. stay the same to inspire confidence around the new CEO’s leadership.
- Customers: Reassure that the products and services that customers value will continue uninterrupted.
- Vendors & partners: Reinforce that relationships will continue with minimal to no disruption.
- Where: Leveraging the right communications channels to reach different stakeholder groups is critical. For examples, employees may be more engaged on social forums than via traditional town hall communications. In a recent high-profile transition, a key element of the communications strategy involved an in-depth interview via LinkedIn to help humanize the incoming successor among employees.
In today’s environment, a smooth CEO transition hinges on outstanding succession fundamentals and an equally well-planned communications strategy. Effective boards will recognize that the new societal landscape has changed the rules of the game and take proactive steps to ensure a thoughtfully executed CEO succession process from start to finish.
Woomi Yun is a Senior Vice President in our Financial Communications team; Robert Stark is co-lead of CEO Succession Services in North America at Spencer Stuart; Dan-Meng Chen is a core member of CEO Succession and Leadership Advisory Services at Spencer Stuart. This post is based on a Spencer Stuart/Edelman memorandum by Mr. Stark, Mr. Chen, Ms. Yun, Lex Suvanto, Global Managing Director of our Financial Communications team; Mustafa Riffat, Executive Vice President in our Financial Communications team; and Ben Machtiger, Chief Marketing & Communications Officer at Spencer Stuart.