Succeeding At Succession

Ensuring smooth change at the top is a priority for any board. Here's how to get it right.

On the flip side, notes Lowry, once the announcement is made, the CEO becomes a lame duck and the markets start speculating about the meaning behind the move. “Is it a signal something’s not working on the strategy, which goes to value; is it a strategic change of direction; or is it just in the normal course of business?” he says.

For a planned succession, Lowry recommends that the board begin to discuss that a move might be coming one to two years out in an informal way, and then refer back to those remarks when the announcement is made. However, “Once you get to a point where the board has made a decision,” he notes, “you have a disclosable event, and you must immediately [release] that.

“You need to think about what you will communicate and when—internally and externally,” he says. “Too often it appears there isn’t a playbook and you are getting events in real time as they become disclosable, and that unsettles you as an investor and as a prospective executive or director.”

Ultimately, whether promoting from within or hiring an outsider, to succeed at succession, boards must know their candidates, stress test them under various scenarios and make sure they are a good strategic fit. “if you are hiring a CEO, you are hiring a strategic officer,” says Trachtman, “and you want to make sure the CEO owns the plan and believes in it.


THE TAKEAWAYS
On the Agenda. Boards spend about two hours per year on succession planning, according to a 2010 Stanford study. Real planning requires real discussion—at every meeting.

Own It. Only 4 percent of boards have a dedicated succession committee, a Conference Board study found. Many let the existing CEO lead the process. To succeed, the board should drive.

Synchronize with Strategy. Be sure your board’s succession approach is integrated with strategy over a five- to 15-year period, factoring in the impact of changing scenarios.

Meet the Prospects. Create opportunities for potential internal candidates to interact with the board and get know each other. This will make for better decisions later.

Communicate. Avoid surprising investors and employees. Be transparent and explain your plans, even if the change is not imminent. Prepare for Sudden Departure.

It may annoy the CEO to talk about it, but emergency succession plans all need to be part of the board’s arsenal. Just ask Equifax and Uber.


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