October 26, 2017 – CEO succession planning has three main leadership components. Most boards of directors embrace their role, accepting that designating the would-be future leader of their company is an ongoing process requiring consistent, dedicated work on their part. The CEO, meanwhile, should be a proactive, engaged partner with the board, ensuring that that the company has a robust, forward-looking approach to executive talent management.
Although less celebrated, the third major player in this triumvirate is the chief human resources officer. The CHRO reports to the CEO, and together they are charged with grooming the next generation of leadership. At the same time, the CHRO has a fiduciary responsibility to the board to assist directors in running an effective process.
Given the high stakes and inherent political and emotional dynamics at play, the CHRO must walk a fine line in navigating this dual role. The skill and sophistication of the CHRO can have a disproportionate impact on the success and effectiveness of the succession planning process. Drawing on its extensive experience in working on CEO succession planning, leadership provider Spencer Stuart offers five recommendations for CHROs in managing an effective process and balancing their dual responsibilities.
1) Be the authority on a best-practice process
Boards depend on the CHRO to guide a thoughtful, orderly and transparent process and ensure that directors are armed with the information they need to make the best decision when the time comes, said Spencer Stuart.
That’s why the CHRO must be an advocate for the best practices in succession planning. This includes ensuring that the board and management team engage in a due diligence process. The first step, said the executive recruitment firm, is to consider the future strategic direction of the business and the ideal company culture. This process should lead to an agreed-upon profile for the future CEO, which should guide the selection process.
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Unfortunately, said Spencer Stuart, there can be a surprising lack of alignment among directors and between the board and CEO in key areas such as strategy and the selection criteria. The CHRO can help ensure that directors discuss these questions and agree on the selection criteria, and that the board and CEO consistently apply the agreed-upon criteria when evaluating potential CEO contenders.
In addition, a tight CEO profile can help insulate the process from efforts to push for favorites by keeping all parties focused on the specific requirements of the business.
The CHRO also should advocate for the rigorous assessment of internal candidates, external benchmarking and the creation of specific development plans that identify the gaps that individuals must address and in what time frame, said the search firm. Many boards benefit from having outside assessment expertise when evaluating how the internal team stacks up against the requirements. This is particularly true when the board recognizes that the business requires a change in strategic direction.
In most cases, the CHRO is responsible for the day-to-day interface with board advisers and, in a real sense, the HR executive manages the process between meetings, ensuring advisers are on the right track and produce their deliverables.
2) Informed independence: Avoid the advocacy trap
Boards tend to lack the granular information about CEO contenders that they most need to make a selection, said Spencer Stuart. Much of the board’s knowledge of internal candidates comes from presentations during board meetings or dinners. Directors naturally turn to the CHRO to help them get smart about internal executives in the pipeline. Indeed, CHROs are in the best position to represent executives’ progress — or lack of progress — on their development plans.
At sophisticated companies, the board committee tasked with CEO succession will want to know the CHRO’s point of view and, once a selection is made, will hold him or her accountable for the information provided, said the recruitment firm.
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CHROs should strive to provide a balanced point of view on the process and the strengths and developmental needs of internal candidates, said Spencer Stuart. They must be honest with the CEO and the board as to whether internal candidates are meeting their milestones. In a process where many of the other players may develop biases, the CHRO must be the one who ensures the honesty and integrity of the process.
3) Advise and support the CEO
CEO succession planning can be very challenging for the sitting CEO, personally and professionally. This is particularly true as the process moves toward the selection of the successor. CEOs face the reality that the board is driving the process, not them. They also have to deal with their self-image, which is attached to the business they run and may have spent their lives building. It is a process of which they ultimately will lose control, and most CEOs are not fond of lack of control.
At some point, as conversations begin to pivot to speculation about the new CEO, the current CEO may begin to feel like a lame duck, said Spencer Stuart. This tempts some CEOs to behave in less flattering ways. Thus, an important role for the CHRO is to serve as counsel to the CEO during the inevitably difficult periods in the process.
Advocates by nature, CEOs may need to be reminded not to push too hard for a particular candidate or solution, which can backfire with directors, or to derail the planning process by finding fault with all the contenders.
Finally, many CEOs are not as prepared emotionally as they think they will be when the organization becomes increasingly distracted by the inevitable transition, said Spencer Stuart. Even when CHROs excel on strategy and organization, the process can fall apart if the CEO gets in the way, potentially costing the business a generation of CEO talent. A CHRO who is a skilled adviser to the CEO can add enormously to the success and effectiveness of the succession planning process by encouraging the CEO to let go and make room for the successor and by helping the CEO avoid missteps that could stain an otherwise strong legacy.
4) Manage the other constituencies
In addition to the board and CEO, the CHRO must be mindful about how the process can affect the business’ other key constituencies, including internal candidates, said Spencer Stuart. The stakes are very high for these executives. They often receive advice from people who are distant from the process, and some of this advice is bad. At the same time, they are trying to run their businesses while they compete for the top job.
While the process will inevitably result in disappointment among the unsuccessful candidates, said the recruitment firm, the CHRO can play a critical role in the retention of executives who are important for the success of the business. This is achieved in part by promoting a fair and objective assessment and development process that focuses as much on building a strong team as identifying the successor to the CEO. The CHRO also will have to be frank with senior executives who are not going to make it to the CEO role and help them develop a specific career plan with the knowledge and experience they will want to build.
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Just as the CHRO advises and provides emotional support to the CEO, the chief HR leader also provides similar support to internal candidates, said Spencer Stuart. In fact, the CHRO may be the only “safe” place for candidates to share concerns about the length of the process or other issues. Candidates tend to think that CEO selection is primarily about assessing the candidates, but much of the process at the board level involves developing a shared perspective on the needs of the business, the candidates and their ultimate decision.
Meanwhile, a CEO transition can be highly disruptive to the company and its employees. The CHRO needs to keep an ear to the ground to understand how the organization is reacting and keep the board and the CEO apprised, said the search firm. Such discussion helps the CEO and CHRO to develop strategies to minimize disruption and smooth the running of the company. A strong CHRO does not let organizational paralysis set in the business.
5) Position the new CEO for success
Once the new CEO has been selected, the CHRO plays an important role in helping him or her prepare to assume the top job. The CHRO should work with the new CEO to map out what the first 100 days will look like at strategic, organizational and personal levels. Determining where the new CEO will want to make a mark and differentiate himself or herself from the previous CEO is critical.
Having been so closely involved in the succession planning process, the CHRO also knows the areas where the new CEO may lack specific experience and can recommend ways to support the new CEO in those areas.
“A take-charge” CHRO also can be the driver of the immediate transition plan, helping the chair or committee head prepare for the activities that occur immediately after the official decision by the board. These can include the communications plan, a plan for the outgoing CEO, compensation for the new CEO, SEC reporting requirements, and retention strategies for non-selected candidates and other key management players. The CHRO often serves as the chief of staff to the committee in architecting the plan, and the CEO and CHRO are usually the ones who ensure that key members of management are confidentially brought into the process to execute these plans.
The CHRO also should encourage the former CEO to limit his or her stay at the company. It’s not uncommon for a retiring CEO to linger and become a hindrance to the new CEO and the agenda he or she is trying to execute.
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; Stephen Sawicki, Managing Editor; and Will Schatz, Managing Editor – Hunt Scanlon Media