It’s Time to Evaluate CEO Successors Differently

Lee Udelsman and Heather Wolf

Board members know full well why CEO succession planning is important. If the company is not grooming a strong pipeline of potential leaders, it leaves itself vulnerable, particularly in an emergency succession. We have watched this play out with many prominent companies that suddenly parted ways with their CEOs over the past few years.

Yet despite its recognized importance, too many boards are failing to engage in robust CEO succession management. According to a 2018 Deloitte study, while 86% of leaders acknowledge the importance of leadership succession planning, only 14% feel their companies do it well. So why do some boards seem so lax about planning for future leadership?

Candidly, because it’s really hard and rarely clear-cut. More often than not, the CEO and board are misaligned about the transition, and emotions and internal politics can hinder productive dialogue.

Regardless, boards must answer the call for “future-ready” CEOs who will keep pace with changing consumer demands, advancing technology and new competitive pressures. Many important new considerations should be rising to the top of every board’s CEO succession deliberations. These six core areas need to be considered differently – and better – as your board evaluates CEO successors:

1. Your next CEO needs to be seriously tech savvy

While being a technological maestro isn’t mandatory, your next CEO must be exceedingly comfortable with and fluent about how technology drives the business strategy. Given the growing reliance on software to deliver the core products and services of nearly every business, you cannot afford a chief executive who must place blind faith in even the best CTO or CIO when it comes to strategic direction and investment decisions. No matter what discipline they grew up in, CEOs of the future need to be in clear command of the technical landscape of their industry sector and those that might disrupt it. It’s equally important for CEOs to be credible with their companies’ key stakeholders, including investors, who will increasingly be digital natives and expect leaders who are out in front of tech innovation. Who on your bench will be a capable and convincing leader of the company’s continual technology transformation?

2. Millennials and their values cannot be ignored

The oldest members of the millennial generation are currently 38 years old. As a group, they will make up the majority of the labor force and the consumer base in less than a decade. How your CEO is viewed by and interacts with this growing segment of the employee base – and the broader economy – must be carefully considered. Incoming CEOs must be able to connect to a workforce that has its own unique set of ideas about work, often shunning the notion of being employed at one company for an extended period, preferring instead gig work and other non-traditional arrangements. Regardless, your CEO will need to find ways to make them feel motivated, valued and empowered to make an impact in the organization and the world. Who on your bench will be able to win the hearts and minds of millennials as they take over the management ranks and amass significant buying power?

3. Having an authentic social media presence is vital

Like leaders of all types, CEOs have always benefitted from being great communicators. The new wrinkle is the two-way nature of communications today, where employees, suppliers and consumers all have a place to voice their compliments and complaints. Being a social media-savvy CEO will mean having an authentic voice (not that of a PR firm), a believable brand story and the willingness to share honest messages, both in good times and through inevitable rough patches. Case in point: Whether you’re a fan or not, President Trump has successfully used Twitter to reach his target audience and share his unfiltered thoughts. For a corporate leader, social media can also mean having your privacy invaded and your private life scrutinized in real time. Who on your bench can handle all of this transparency and become a genuine brand asset?

4. Tomorrow’s CEO must be a diversity champion

Though a melting pot throughout its 250-year history, the U.S. population looks quite different today than it has throughout the baby boomer generation. The business benefits of diversity are readily apparent and well documented with every new study published, signaling that CEOs of the future will have natural advantages if they are overt advocates of cultures that allow diversity and inclusion to flourish. This starts with a dedication to measurable policies and practices such as gender pay equity, benefits that support parenting and eldercare, sponsorship of high potential women and people of color, and diversity standards for suppliers. Boards will also need to consider more subtle qualities in potential CEO successors to determine who has an innate understanding of diversity’s power and who would just be going through the motions. Who on your bench will capture the competitive advantages of a workforce that reflects your market and get the best from all of its diverse talent?

5. Leading with confidence means thriving on ambiguity

It’s a fight to stay relevant every day in the business world. Your next chief executive will face numerous challenges we haven’t even thought about today, and some that are unfolding currently such as climate change, geo-political disruptions and regulatory shifts. Managers that appear paralyzed by uncertainty or don’t know when to cut their losses and move on will struggle to be effective at the executive level. Boards need to rigorously evaluate how their CEO candidates assimilate data, make difficult choices with imperfect information and behave under pressure. Future leaders will be expected to act decisively and take smart risks while also displaying emotional intelligence and other soft skills to smooth over inevitable mistakes and bring stakeholders along when times are tough. Who on your bench has proven capable of sifting through pervasive ambiguity to lead with confidence, determination and grit?

6. “Next gen” CEOs can bring competitive advantages

While CEOs have typically come up through the ranks in an organization—often from a major operating or CFO role—it’s not necessarily the “obvious choices” that will be the right ones going forward. That’s the hardest part of the selection process. Board members should take a close look at “bright stars” across all disciplines, particularly those that are increasingly critical to business success. With information at the core of every business, perhaps the CIO should be groomed to take over the top job? Same with superb marketing executives who embody the brand experience and can drive it forward. Or gifted HR leaders who are helping their companies win in the war for talent. And certainly top General Counsel with their intimate knowledge of every aspect of the business warrant consideration. Naturally, there are risks with the appointment of any new CEO, and these might be magnified with candidates who haven’t served “time-in-grade,” or other traditional measures of success. Boards will need to courageously weigh these risks against those of appointing a CEO who doesn’t embody the attributes illuminated above, acknowledging that in all cases, new CEOs require the support of an engaged board and diverse leadership team as they gain their footing and grow in the role. Who on your bench is capable of leapfrogging today’s senior executives and becoming effective and credible with your internal and external stakeholders?

CEO succession management is and probably always will be one of the most difficult – and most critical – board responsibilities. Failure to address the shortcomings of a sitting CEO and/or the board’s succession management process will only compound the difficulties going forward. Armed with these important new considerations and the determination to tackle the job head on, every board can make great strides towards successful CEO succession.

Heather Wolf is Managing Director in the Board and CEO Practice of Allegis Partners

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