To Cut Risks, Boards Demanding More from Search Firms and CEOs

June 28, 2016 – In the volatile, ever-changing landscape of today’s business world, companies are under intense pressure to make the right choices about their leadership. Between competition, customer demands, and shareholder expectations, the marketplace provides little forgiveness for mistakes, and the consequences of bad decisions can be onerous. For boards of directors, solid succession planning becomes critical, says George L. Davis, Jr., who heads the global CEO practice for Egon Zehnder and who specializes in CEO search and succession. In this new day there’s an array of potential leaders, George told me in a recent interview, but there are likewise many questions about the capabilities of these individuals.

“The disrupted environment has put more pressure on the same issue that boards have always faced: How do we know we’re making the right decision?” says George. “CEO choices are higher risk/higher reward than ever before. In a world of global mobility, increasingly fluid moves between converging industries, and more sophisticated internal development programs, organizations feel in some ways that they have a broader range of choice than ever before.”

“But the downside of this is uncertainty that the new CEO can lead them through a more and more uncertain future. To mitigate this risk, boards are demanding more sophisticated market benchmarking, and more in-depth assessments, including assessing a leader’s future potential, in addition to leadership competencies and past experiences.”

A New Breed of CEO

George has been with Egon Zehnder for more than 20 years. He previously led the firm’s global board practice, advising boards on board effectiveness, director succession, and searches for board members, non-executive chairs, and chief executive officers. Over his career, he has been instrumental in the placement of more than 500 board directors, and he’s renowned for his expertise in effective corporate governance. Based in Boston, he is also a prolific contributor to publications like the Wall Street Journal, Harvard Business Review, Forbes, and others.

Adding to the complexity of succession planning is that companies, and their employees, are increasingly interested in a new type of CEO. They want someone who can relate well and who has a feel for what drives and fulfills his or her people. Employees these days tend to want more out of their jobs and careers than mere dollars and cents, says George. “With Millennials now poised to make up a majority of the workforce at companies in fields as diverse as consumer packaged goods, public accounting and car rentals, their desire to work in organizations that can offer them a sense of purpose, integrity, and engagement – ‘PIE’ – necessitates a new breed of chief executives,” he explains. “The next generation of CEOs will have to be more of a ‘servant leader’ in a more distributed leadership model versus the top down, ‘command and control’ CEO leadership model of old, in order to lead a workforce that studies tell us want to be coached, not directed.”

“Finding this kind of leader requires a very different sort of process than what might have gone on even a few years ago. Companies need to dive far deeper into CEO candidates’ ability to stand at the helm of company cultures that are going to change very fast. Beyond culture fit, which is still very important, they will need to take a deep look at candidates’ level of engagement – the ability to understand, and work with, the deepest motivations of others.”

Yet many companies are ill-prepared for CEO succession. Oftentimes, they either won’t admit it or fail to realize it. All this is at considerable risk to the future of their organizations. “Recent research tells us that only one in 50 companies discloses any real detail about their succession processes, which leads us to believe that while many companies are ‘ticking the box’ and nominally putting a succession plan in place, many of those plans are not robust,” says George. “They may not be completely refreshed, for instance, or they may not take into account emergency situations.”

A Holistic Approach

Even when firms are committed to planning ahead, they face issues that they’re not always equipped for dealing with. Heed must be paid, for example, to the reactions, and emotions, of internal candidates who get passed over for key roles. A company should do everything within reason to keep those individuals from jumping ship, says George. “In the days of working for one company for decades and receiving a gold watch when you retired, you didn’t have to worry about internal candidates being disappointed and leaving if they were not selected, or not selected fast enough,” he says. “Today, executive talent markets are such that you have to go into succession planning explicitly thinking about the retention of internal candidates. The good news is this entails thoughtful development strategies which are of huge value to the organization across the board.”

Confidentiality and general communications management can be another challenge. “Companies can’t afford to spook or confuse key stakeholders, but at the same time they are increasingly focused on understanding how their internal candidates stack up to the external market,” says George. “Getting the information they need to make crucial decisions – without ‘letting the cat out of the bag,’ so to speak – is a tightrope that companies are walking with care.”

Proper succession planning is relatively simple, he says. Companies that are approaching the challenge intelligently know that they stand to gain in the long run. Among other things, it removes a certain gambling sensibility from the equation. “They are starting earlier and earlier, and engaging more deeply,” he says of client firms. “They are asking themselves searching questions about what scenarios might be possible, instead of putting all their chips on one potential future. They are looking at their internal candidates more holistically, with reference to peers outside and a strong emphasis on development, so they don’t feel anxiety on the cusp of appointing someone. And finally they are delving into the essence of their candidates, and looking beyond just the wins someone has chalked up. They want to see curiosity, determination, and resilience. They know the days ahead are challenging.”

Contributed by Stephen Sawicki, Managing Editor, Hunt Scanlon Media and Scott A. Scanlon, Editor-in-Chief, Hunt Scanlon Media

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