Choosing a CEO in Financial Services

One of the most vital roles of boards is to ensure that an effective CEO selection process take place. In an insightful report, Canadian search firm Massey Henry breaks down the key areas that will help your board through this challenging undertaking.

February 17, 2023 – Boards—especially within a financial services environment—play a critical role in providing direction on organizational strategy and performance while operating with shareholders, consumers, and key stakeholders top of mind. While the scope and oversight of boards have grown exponentially in recent years, there are two critical responsibilities that are especially pertinent for directors. These include approving a sound strategic plan for the organization, and, just as important, ensuring an effective CEO succession and selection process.

Recent data regarding CEO tenure suggests the challenges are significant. A study published in CEO Magazine indicated that average CEO tenure has declined from 8.5 years in 2003 to 3.7 years in 2020. Studies by PwC and the Conference Board have identified various factors that impact CEO tenure, including the complexity of the organizational operating environment due to ESG adoption, COVID considerations, rapid technology transfer, and changing global trade dynamics.

“Given this context, it will be important for boards to stay ahead of such challenges and develop a well-structured CEO selection process, combined with an effective internal CEO candidate development and succession strategy,” said Toronto-based executive search firm Massey Henry in a new report. In the study, the firm offered its insights into how to ensure an effective CEO selection process in financial services.

Internal vs. External candidates

The challenge of identifying and onboarding CEO hires while factoring in internal and external candidate considerations has been well documented. When organizations do not readily possess the internal talent needed for such a role, there is no other option but to look externally. “Often, the absence of competent or ‘ready’ internal candidates is directly related to the efforts made by an organization in developing its senior executives internally, or towards sourcing potential CEO successors three to five years in advance of a CEO’s decision to retire,” said Massey Henry. “Research suggests that while internal candidates tend to have longer tenure and more effective leadership transition experiences, organizations often lack suitable successors within the organization. In many cases, a vastly different competency set is required for a new CEO in tandem with market and operational considerations, which internal candidates may not possess.”

Whether an internal or external candidate is ultimately selected, there are many
important decisions that the board can make to mitigate risks around performance
and/or tenure. As such, the firm provided a look at the key areas that can make a significant difference in the outcome of a CEO selection process:

1.Establish the CEO Search Mandate

The board plays an important role in defining the objectives, guidelines, and process for CEO selection. The CEO mandate needs to be well crafted, and decisions must be made to ensure sound communication with key stakeholders regarding the recruitment process and/or the selection of an executive search firm.
“Determining a consensus around the required experience, expertise, functional skills, and behavioral attributes of the future CEO will be especially important,” said Massey Henry. “Whether or not a formal CEO succession program is in place, the full board should be engaged in identifying the ideal CEO candidate profile.”

This discussion should be informed by the existing three to five year strategic plan, as well as the organization’s performance and competitive landscape. “Given the importance of strategy within a board’s duties, all relevant information should be transparent,” said the report.

“While these discussions typically involve the incumbent CEO in most organizations, the board should also consider the candidate profile independent of the current leader,” said Massey Henry. “Independent reflection will enable the board to openly discuss any expertise, experience, or leadership style considerations required for the future CEO.”

2. Determine the CEO Selection Committee

After establishing the ideal candidate profile for the next CEO, the board will need to determine the members of the CEO selection committee responsible for overseeing the recruitment process. “Whether a standing selection committee exists or not, the board chair should carefully review the composition of the selection committee to ensure that there is balance within the group,” said Massey Henry. “Bringing together an understanding of the organization and its culture, competitive marketplace, required functional expertise for the role,
as well as key behavioral attributes are all important factors when choosing
committee members for a CEO selection.”

3. Stakeholder Consultations

Conducting stakeholder consultations is an effective means of collecting valuable input to help shape a CEO selection mandate. Consultations are particularly effective in organizations that place a premium on consensus-driven leadership styles. “Regardless of the organization’s style, it is wise to solicit input from stakeholders and influencers across the organization well ahead of the decision-making process,” said Massey Henry. “The complexity of today’s economic and
geopolitical environment lends further importance to reflecting broadly about what skills and competencies are required for the next CEO to be successful.”

4 New Rules for CEO Succession Planning  
Best-in-class CEO succession planning calls for boards and CEOs to start succession planning even earlier to increase the chances that the right person will be ready for whatever scenario the company faces. According to a new report from Spencer Stuart, boards that do this well will take a multidimensional view when scenario planning, increase succession options, evaluate, and accelerate potential, and think beyond CEO succession to CEO-plus.

A bookend to the above activities should be a frank discussion of the overall process, timing, and the communication strategy to both internal and external stakeholders.

4. Stakeholder Communications

An organizational change as significant as the selection of a new CEO requires a well planned and executed stakeholder communications strategy. Ultimately, a strong communications strategy should seek to achieve a balance between transparency and good corporate governance, said the report.

The chair, the board, and incumbent CEO should work together to identify the appropriate messaging and stakeholder communication plan prior to going to market. “Of course, certain circumstances will require specific communications to investors and regulators, but it is important to ensure that key stakeholders and influencers are made aware of ongoing developments,” said Massey Henry. “The scope and content of the communications process will vary between organizations, but the communication strategy should accomplish the following: provide awareness about the CEO search and its context; outline the process, timetable, and desired outcomes; and discuss how stakeholders will be engaged during the search and onboarding process.”

5. Selecting an Executive Search Firm

Selecting an executive search firm is an essential task for the selection committee. Proper due diligence is key whether engaging with a new or existing executive search partner.

Related: Meeting the Challenges of the CEO Succession Process

“An engaged search partner should bring financial services sector expertise, relevant experience, and an established network of C-suite contacts,” said the report. “While the above are fundamental to a successful search, the interpersonal skills required to collaborate and work with the board, internal senior executive leaders, and candidates will also be critical.”

In short, a balance of IQ and EQ enables search partners to provide competent and candid advice to internal senior leadership and to candidates within the context of the situation and organization.

6. CEO Compensation Review

Early consideration and contingency planning regarding compensation will have significant benefits for the board and the respective committees that have input into compensation matters. A well-developed approach and philosophy will be necessary to ensure that the organization is prepared for finalist candidate discussions and negotiations. At times, fresh consideration of current compensation frameworks and potential alternative approaches is warranted.

These considerations, said Massey Henry, should cover the following:

*Review internal vs. external compensation practices, with a focus on what is appropriate for the organization but in line with market practices.

*Prepare for “keeping whole” issues, such as STIP forfeitures, unvested LTIP, pension entitlements, and relocation expenses.

*Prepare for redlines in advance for instances where current programs in place might not meet finalist candidate expectations.

*Remember that compensation expectations are a business issue, not an affront to the selection committee or organization.

7. Assessment and Onboarding

Candidate assessment and onboarding should be top of mind for the board and search committee during the CEO selection journey.


Organizations need to be aware of the assessment methodologies and tools available, as well as the strengths and weaknesses of different approaches when evaluating candidates.

“It is important to remember that assessment methodologies used to evaluate other levels within an organization may not be appropriate in a CEO selection process,” said the report.

Exploring 5 Myths of CEO Succession
There is no more important pathway to successful leadership development than succession planning. Although the stakes are immeasurably high, succession planning is still an undervalued corporate agenda item, according to a new report from Russell Reynolds Associates. Top performing organizations understand that succession planning is a key pillar of corporate performance that transcends short-term emergency planning scenarios. According to the National Association of Corporate Directors, 57 percent of public company directors report the need for improvement in CEO succession planning. However, many CEOs and boards are skeptical. Moreover, there are widespread myths about proactive, high-functioning CEO succession.

“The most significant decision to be made regarding testing is the leadership attributes and behaviors the assessment should focus on,” Massey Henry said. “At the CEO level, we suggest that assessment results should be paired with an in-depth debrief session conducted by a qualified assessment practitioner.”


Onboarding discussions and planning need to occur early in the selection process. Failure to think through the immediate onboarding process and outcome for the new CEO’s first year substantially increases transition and integration risks.

“One of the first considerations should be the identification of a potential ‘mentor’ for the new CEO; this individual would provide support and guidance to the successful candidate,” said he report. “This relationship would be distinct from the formal relationship that a CEO has with the chair of the board—the mentor relationship is designed to help the new CEO navigate situations, people, and organizational culture during the critical first year.”

It is best to identify a few potential mentors early in the process given that the background, personality, and behavioral attributes of the successful candidate would be unknown at the outset of a search process.

“The selection committee and the board at large should also determine some of the key milestones for the first 90 days and the balance of the year,” said Massey Henry. “These milestones typically involve stakeholder meetings, pre-planned strategy sessions, and of course, AGMs.”

The Bottom Line

“Based on the many CEO selection engagements our firm has led in recent years, and as discussed in this article, it is critical for boards to implement a structured process that regularly reviews the CEO succession planning process,” said the report. “They must also understand the key considerations regarding the decision to execute an internal or external CEO selection process. Ultimately, financial services organizations that are deliberate in their approach to CEO selection will have a competitive advantage when it comes to identifying and onboarding their next CEO.”

Related: 4 Actions Organizations Can Take When a Leader Exits

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media

Share This Article


Notify of
Inline Feedbacks
View all comments