Did you know your Board is responsible for having a backup plan for replacing the CEO?
Imagine this scenario:
You are on the board of a large, publicly listed company, and the CEO of the company unexpectedly resigns, or worse, becomes ill or unable to perform the CEO duties. It is the board’s responsibility to ensure the right leadership team and minimize company risk, including appointing the CEO. Does your board have a backup plan for replacing the CEO? Or do you scramble to create a list of potential candidates, losing valuable time while you put together an action plan?
Many boards don’t realize they need to be prepared at all times with this plan, or that a relevant backup plan is possible. Without this plan, your company can go through a devastating experience.
What are the elements of a good plan?
The backup plan should be created by the board in cooperation with an external specialist, and should include these activities:
- Interview the Chair, Deputy Chair and CEO about company strategy. In cooperation with the three, translate strategy and long-term goals into “what great looks like” for the ideal candidate for the future CEO role.
- Note that some boards are reluctant to involve the current CEO in the planning. However, experience shows that a professional CEO will not feel threatened, but instead will understand the necessity, and readily engage in the discussion.
- Develop a detailed framework for this “ideal profile” in terms of experience and leadership competencies. The framework might include, for example, how large a P&L the person has managed, what type of work experience s/he has had in the relevant sector, what type of leadership and people development experience, demonstrated capabilities in strategy development and conceptual thinking, and many other criteria. For each criterion, there should be an evaluation score, with detailed descriptions of what each score means, and discussion / agreement on the minimum required score for each area.
- Define the target search universe, including names of relevant industries and companies where candidates should be searched for.
- Conduct desk research and networking to identify a list of names of candidates that might be relevant and motivated for the role.
- Agree on a shortlist of candidates / potential successors, both external and internal, who, based on experience and reputation and according to the defined framework, might be relevant. Note that the list is confidential and that candidates on the list at this point are not contacted, i.e., are not aware of the fact that they are on the list.
- The list should be reviewed and updated at least every six months, preferably every quarter.
- Depending on how prepared the company wishes to be, consider going one step further and asking the external consultant to have exploratory talks with the high priority candidates (without revealing the name of the company, in order to avoid rumors incorrectly stating that company is looking for a new CEO). This will help determine their eventual geographic mobility, potential motivation for changing job position / company, and if possible, whether there is any competition clause, and what the rough compensation package expectations would be. There should be follow up with these candidates every three months, to stay updated on likely interest and availability.
As mentioned above, it is seldom that boards are prepared with such a strong backup plan. However, the best boards have done this work to ensure they are prepared.
If you would like more information or assistance with developing this plan, don’t hesitate to contact us at:
firstname.lastname@example.org or email@example.com