How HR Can Plan the Exit of a CEO
Insight on how HR can influence a smooth leadership transition without damaging the business.
The question of CEO succession is discussed openly in some boards, and yet others avoid the succession topic altogether. Obvious reason is that the board may avoid this so as not to offend the CEO, especially if he or she may be not be ready to step down just yet. On the other hand some CEO’s avoid the question all together most probably because they do not want their board to think they are considering leaving. Whatever the reason, one thing is very clear,
The transition from one leader to another is a critical moment in the history of any organisation and how it is managed contributes significantly in enhancing confidence in the company from various stakeholders.
The ultimate responsibility of CEO succession rests with the board and this is a key measure of the board’s effectiveness in the eyes of stakeholders, investors, business partners and employees. The departure of a CEO can sometimes be planned, and in some cases it can abrupt and disruptive. A good succession plan goes a long way to minimise any negative impact from an abrupt exit.
“Effective leaders surround themselves with the right people and build on each person’s strength” – Pendleton and Farnham, 2012, Leadership: All You Need to Know.
Leadership transition is a process that should begin long before the outgoing CEO departs. It also present the board with an excellent time of reflection on how to move forward with an new understanding of the issues the organisation must address at that time, and in the near future. Planning the CEO transition provides the board the opportunity to assess the capability of other senior executives, who be well equipped with the right capabilities to provide desired leadership when called upon. The CEO does not operate in a vacuum, and a good leader ensures that they have a strong leadership pipeline to support the organisation’s strategy, all the time. While it is a fact that the best leaders may not be well rounded, the best teams are.
And so to the topic, 'What is the role of HR in CEO succession planning?” Working closely with the board’s HR Committee or equivalent, the HR leader’s role is to support this process through the following activities:
Succession planning is largely led by HR in many companies and a good HR leader will guide the board on how to develop a succession framework that meets the needs of the organisation. This would involve developing a policy detailing how the board views succession planning within the organisation, stating steps that should be in place to enact the policy.
As the board interacts with the senior managers through regular meetings and other forums they have a great opportunity to evaluate the capabilities of this team. The HR leader should however guide the board and the CEO in evaluating capabilities and competencies required of the all senior executive to deliver the organisation's strategy and review this frequently to ensure it is well aligned to the business plan.
Through leadership assessment tools the, HR leader should guide the CEO and the board in evaluating competency gaps within the senior team and create a development programme to grow required capabilities in a systematic manner, including advising the Board on the resources required to support such a programme.
Working close with the CEO, the HR leader will develop effective retention strategies for leadership talent and hire senior executives with great potential for leadership positions.
In cases where the board may need to source for a successor externally, the HR leader’s role shifts to support the board in the following tasks:
Drafting or reviewing the job description to ensure it is well aligned to strategic issues and other critical task that are important to the organisation. If the job description does not capture all critical tasks, it may not guide the recruitment team in selecting the best fit to the job. The job description will also provide the professional skills, experience and competencies required in the role.
The HR head is crucial in guiding the board in the best recruitment process to follow. Most CEO positions are best sourced through highly networked and experienced recruitment firms. The role of HR in this task would be to develop criteria that would guide the board in selecting the right firm, and advising on terms of reference that would capture every important task required of the consultant.
The HR leader plays a critical role in internal communication to employees and would be useful in coordinating the flow of information from the board to staff and alley any fears that may accompany changes at the top office.
The HR leader will work closely with the board and other senior managers to plan and ensure a good and smooth induction of the incoming CEO to all stakeholders.
Stephen Mills and Ted Dysart, in their article – 'Best Practices in Succession Planning' summarises the role expected of the board, outgoing CEO, Senior Management Team and shareholders for a smooth transition as follows:
Board – Owns the process. Confidence in a successful CEO appointment and transition. Development of a robust leadership pipeline is the number one sign of good governance. Best practice is for the boards to look inside and outside the organisation using a proven process and methodology for evaluating leadership talent.
Outgoing CEO – Input into the process. Their number one job is to have developed at least one potential successor inside the organisation. They provide input into current and future state of the business model and strategies. They also provide input to the team conducting the internal assessments in terms of their objective and dispassionate view of the internal candidate.
Senior Management Team – A clear understanding of the internal processes and the required skills and competencies. A high-level developmental roadmap and detailed personal coaching plan (internal candidates) which can be refreshed every six months depending on the transition time.
Shareholders – Assurance that the board is rigorously managing the succession process and performing active oversight of leadership development. Shareholders gain confidence that the best leadership is being identified, recruited, developed and retained based upon the ability to drive business performance and enhance long-term shareholder value.
I will add a fifth group, the employees, who need to feel reassured that the transition will not bring uncertainty that may affect the company’s performance leading to unexpected changes. Smart employees want to work in growth-focused organisations. The moment there is lack of clear direction, their passion and commitment will obviously be under question and may lead to a turnover of key talent.
In his books on developing effective board directors, The Fish Rots from the Head, Bob Garratt says,
I start with the view that the final responsibility for the future of the company depends upon the board as a whole, therefore, the direction in which the company is to be led is the unique responsibility of the board.
That future is best secured by ensuring there is a clear CEO succession towards a smooth transition when the time comes.
*Originally posted on 21st October 2014.