Successful succession

The Board's choice of a new CEO is momentous. The clear importance of the decision, the impact of the selection on the motivation of the team and the critical need for confidentiality all demand attention to detail, forethought and sensitivity towards everyone with a stake in the process. Yet most Boards have limited experience in preparing for and managing CEO transition successfully.

Egon Zehnder's dedicated CEO Succession practice provides Boards with valuable guidance. Often working as a trusted adviser over a long period, the firm helps clients to make and manage the often difficult decision between hiring an external candidate and elevating an internal candidate, in both cases providing insight, methodology and structure to ensure that all the crucial details of the CEO selection are addressed with skill and care.

Andrew Roscoe

Andrew has led assignments to identify CEOs and Finance Directors as well as consulting assignments for international energy sector companies on the appraisal and development of senior executives around the world. He previously held corporate roles in the finance and energy industries.

Miranda Pode

Miranda leads the firm's London office and advises clients at the highest level across a broad range of leadership challenges. She previously led the firm's Financial Services Practice in London and had a former career working in the retail sector, in a variety of operational and management roles.

David Kidd

David focuses on Board level executive and non-executive searches and Board Reviews. He has been responsible for CEO succession assignments across the mining, energy, industrial, financial services, healthcare, consulting and consumer industries.

 

Andrew Lowenthal

Andrew is co-Head of Egon Zehnder's global Board Practice and previously led the firm's Financial Services Practice Group globally. He focuses on Board consulting and senior level executive work, often on assignments for Chairmen, CEOs, senior executives and had a former career in investment banking.

Jill Ader

Jill focuses exclusively on Board appointments, CEO succession and Board Effectiveness Reviews, largely for consumer and service businesses. She sits on the board of Egon Zehnder and previously had a corporate role in retail.

Egon Zehnder celebrated its 50th anniversary in June 2014 with a gathering in Switzerland, the home of its founder, of all 420 of its worldwide consultants from 66 offices in 40 countries.


1

What does best practice look like when it comes to CEO succession?

2

How has the perception of CEO succession changed over the years?

3

When identifying successors, what do you look for?

4

How do you help to develop leadership competencies so that individuals can progress?

5

How do you integrate new successors?

David: One of the very first things we say to clients is you need to get started even earlier than you think; the preparation time needed to do it properly is years not months. We've been advising many of our clients on leadership issues for a long time, which of course makes it easier to have these discussions and look at the challenges in a holistic way.

Overall the whole process can take two or three years in a big company - and the bigger company the more these time frames extend. Once underway, there are different work streams, starting with agreeing to the best of one's ability what the job requirements will be – predicting what that person is going to have to do in their period of likely tenure, which may or may not be the same as the issues facing the current incumbent. This allows you to understand what you are looking for and is critical, since we know that the effectiveness of leaders depends less and less on what they've done in the past, and more on whether they have the traits and aptitude for what lies ahead.

We would follow this up with an assessment of the internal candidates and then work with the client to develop those deemed to be the most probable successors – that's why it takes so long. Closer to the time we'd want to look externally at the best options and, as with any role, best practice is to compare the best internal and external candidates. But you should be mindful of external candidates at all times in case you are faced with an emergency situation.

Miranda: Yes, and particularly within a regulated business, where it is a requirement of the regulator for the Nomination Committee to have a robust succession plan. But it's also really important to look at the bigger picture: we've seen a real shift away from the cult of CEO as “Number 1” and towards leaders who can deliver the collective good. Indeed we've built this awareness into the tools we use to assess potential candidates and our advisory work on succession with clients. Any potential CEO now has to reflect the moral compass of the business and also listen – both to what the organisation wants to do as well as what stakeholders want and expect.

Andrew L: One shift has been in the approach to internal candidates. The first time I worked on a CEO succession plan our job was all about the external talent – we were excluded from evaluating any internal candidates because there was a perception that the organisation already knew them. But that was a mistake.

What they didn't consider in the past was the big issue of the 'de-railer' – how the internal candidate would cope if things go wrong. And so a large part of what we do today never happened then.

David: We have also seen a huge change in the role of executive search firms. In the past it was about hiring somebody to fill a gap as a necessity, but now search firms are genuinely being seen as long-term strategic advisors that can be brought in to a very sensitive, very confidential process.

Jill: Today when you are working on CEO succession you become an insider that has to be totally independent and objective. If you are coming in with the mindset of 'I am a search consultant', then you are biased – especially if your remuneration is based on hiring. You have to be an independent objective advisor, which doesn't suit the more transactional types. You have to have no bias as to whether the succession is internal or external, and actually help to develop the international options. Developing internal talent is also now a huge focus for us, helping possible successors to fully realise their potential and be more ready in time. Central to a broader, more holistic approach is also what we're calling Transformational Leadership. This is all about looking at developing leaders not only from the perspective of the individual and team, but the wider organisation and its stakeholders.

Andrew L: Historically, an individual's past achievements would be used as a predictor for their future performance - but now the emphasis is on their character traits and potential. We've developed a new approach which examines the key dimensions of potential – curiosity, insight, determination and engagement. This wouldn't have been used five or ten years ago when looking at leaders.

Organisations are now working with us to assess and understand how an individual will develop in a role, and perhaps address future challenges, rather than base judgements on their past performance.

Jill: I agree. In the past it was thought that if someone had already been a successful CEO then they would be a great candidate. But actually I think these proven individuals need testing for potential even more, to see if they will refresh themselves and look at things from a new perspective, rather than think that they know it all and have seen it all.

Jill: The first step is for the organisation to identify, several years in advance, where the company is headed and how the strategies, complexities and opportunities will differ. From this you can evaluate and develop people against those predictions and the 'spec'.

Andrew R: And the process of development has changed. Traditionally it was about doing a training course or getting a coach, but now we have been investigating the whole suite of tools available. Working on things like 'immunity to changed and why someone may have found it difficult to change in the past.

This means that rather than just giving a candidate a list of things that they need to do in order to develop, there is a discussion around what is important to the individual and how they need to evolve in order to achieve. It is a much more thoughtful approach that has better results.

Jill: This is where the importance of potential comes in, and the biggest predictor of potential is curiosity; someone who questions what is going on with the world, the company and themselves will help to keep the strategy alive. Because if suddenly there is need to take a completely different direction, they will be able to cope with that.

Andrew R: In the old days we would be tasked to find ‘the perfect leader’. But now it is much more realistic. Individuals with many of the qualities needed, who are taking a step up, are nurtured to ensure they don’t get de-railed and the organisation gets the best out of them in the shortest possible time.

But there are often situations where this doesn’t apply or may not be enough, so we’ve developed a new, proprietary approach which we call Accelerated Integration, which really delivers accelerated impact. It’s all about working with the organisation and incoming leader to understand what might cause issues – and work to pre-empt, minimise or overcome them in advance, so making a new leader more effective much sooner. It’s increasingly popular for both external hires and internal promotions.

Miranda: Even the most capable and curious individuals need time to familiarise themselves with the requirements, pressures, risks and opportunities of the role. And so we help to speed-up that learning process by being a sounding board and, going back to David’s point earlier, acting as trusted advisors.

In more general terms, this is another area where having long-term advisory relationships – with both clients and candidates – can make a real difference, allowing us to help by using our knowledge of strengths and weaknesses to identify potential obstacles or challenges outside their experience.