Last year the world reeled at the news that Steve Jobs would step down from his position as CEO of Apple due to terminal illness. Known for his keen eye for innovation, strong leadership abilities and his hands-on approach, Jobs redefined how we live our lives with technology and made Apple a force to be reckoned with. Many wondered how Apple would survive in his absence. The idea that Jobs could ever be replaced as CEO was unimaginable.
Almost a year after his departure, Apple proved that it would continue to thrive without Jobs at the helm. While no one could ever replace Steve Jobs, his vision for Apple, and the culture that he cultivated, live on through his successor Tim Cook. While Apple is an example of a successful transfer of leadership, some companies don’t fare as well in these instances. It’s important to reduce the vulnerability brought on by a change in leadership through thorough succession planning.
Many CEOs are threatened by the idea of succession planning. They feel that no one else will be able to fill their shoes or they have no intention of stepping down anytime soon. There’s also the fear that a clear successor might mean a loss of job security. Despite these concerns it’s evident from the Apple example, as well as the case of McDonald’s who lost two CEOs within a year due to illness, that a valid succession plan must be in place to mitigate the risk of a catastrophe when there is a transition of power.
Charles “Chuck” Prince became CEO of Citigroup in 2003, succeeding then CEO Sandy Weill. In 2009 as a result of $11 billion losses from the failing mortgage market, Citigroup’s board of directors prompted Prince to resign. Former CEO Sandy Weill admitted that the succession planning that resulted in Prince’s taking over as CEO was “’flawed’ and turned out ‘not to be the right thing’”. Weill felt that he and the board of directors should have vetted more candidates for the position instead of “handing the job to Mr. Prince”.
An important step in succession planning is having an actionable plan. Many companies claim to have a succession plan, but the plan usually amounts to nothing more than names on paper. It’s important that the CEO as well as the Board of Directors is involved in the creation of a succession plan that works to identify individuals within the company who align with the culture of the organization and have the potential to fill the role. As a part of the succession plan, the Board of Directors must create a set of skills criteria for the CEO position and continually assess each candidate on their readiness. The criteria for the position should not be static and should be influenced by the future plans of the company. It is necessary to continually revisit and possibly adjust the required skills for the role, especially in regulated industries. If the direction of a company changes or there are significant regulatory changes, it’s likely that the skills required for the CEO position will change as well.
Once the skills criteria are in place, the process of identifying viable candidates can be accomplished by evaluating the skills of selected executives within the company. This process can be carried out in-house or through an outside vendor. As a result of this assessment, the board will have the tools to narrow its focus to a smaller number of individuals. The assessment will not only allow the board to gauge these individuals’ strengths, the board members will be able to identify the key skills that internal candidates are missing or need refining. The board may also find that their bench is not strong enough and outside candidates may need to be considered.
Once candidates are identified, the succession plan should include actions to continually groom and prepare those individuals since it is unlikely that candidates will be readily prepared for the position of CEO. In order to address any gaps, candidates may be moved into a challenging new role or given new responsibilities. It’s important that performance is measured and the Board is kept informed of the progress of these individuals on a regular basis.
Another important step is to make the existence of your succession plan known to shareholders and employees. Many companies experience a dip in stock price upon the announcement of a new CEO, especially in unforeseen cases, due to fear and uncertainty from shareholders about the direction of the company. A change in leadership can create the same type of uncertainty or fear for employees, resulting in the loss of talented individuals. While the level of transparency may vary by company, shareholders and employees will feel a higher level of comfort knowing that an on-going plan is in place for unforeseen or even planned changes in leadership. Making potential successors more visible will also help to eliminate concerns about their abilities to lead and increase both employee and shareholder confidence.
Mentoring by the current CEO is an important part of succession planning as well. The goal is not to create a clone of the current CEO, but to transfer knowledge of the position and give successors an insight into the vision for the company. Through mentoring, a CEO can also gain insight into the style of leadership of a potential successor and provide feedback to the Board of Directors or use the knowledge themselves if they are responsible for choosing the successor. A good idea would be to solicit the candidates’ input on key decisions to better understand their style of decision-making.
Succession plans may vary from company to company however it’s an important and necessary task that should not be delayed. The process is on-going and always changing. The results of succession planning will lead to a more seamless transfer of power from one CEO to another and reduce the risk of negative effects brought about by a change in leadership. The future is unpredictable and having some level of assurance that your company will survive during stressful times or major changes is critical.