CEO Succession: How to avoid the pitfalls and unlock the value

CEO Succession: How to avoid the pitfalls and unlock the value

Poorly managed CEO and C-suite transitions in the S&P 1500 companies are estimated to cost US$1 trillion annually¹. This presents a fundamental challenge for corporate and board governance. Even for some of the biggest companies, planning for and ensuring a successful CEO transition can be a big challenge. There are many case-in-points: Microsoft’s 6-month search for a new CEO when Steve Balmer announced his intent to step down, Disney’s imploded succession plan eventually bringing Bob Iger back from retirement in 2022, and most recently Tesla’s proposed US$1 trillion package for Elon Musk. Succession planning is a top consideration.

Successful CEO transitions are much more than finding the right candidate – a misconception that many boards falter on. It is much more. It is about creating the right conditions for success. A tricky combination of aligning the right individual capabilities, team dynamics and board stewardship, enables successful CEO transition.

The Individual Conundrum: When the board needs to look further

Modern CEOs require capabilities beyond traditional business acumen, visionary leadership and senior-level team management. They need the capability to read organizational dynamics, manage complex and often competing stakeholder relationships and the clarity of thought to see what the rest in the room often fails to.

Incoming CEOs with blue-chip qualifications from reputable universities and 30 years of senior leadership experience increases the likelihood of success, but it is no guarantee. Boards need to look further for that X-factor, often borne in the individual’s psyche and emotional intelligence. A clear indicator would be the incoming CEO’s ability to listen, to rally the organization and fundamentally re-wire the company’s emotional DNA with emphasis on EQ and collaborative leadership – like Satya Nadella did when he took the reins at Microsoft.

The emotional inability of outgoing CEO’s to ‘let go’ and release control, arguably presents the most formidable barrier towards a successful transition. This ‘ego trap’, when an individual’s title or role becomes entwined with his/her sense of self-worth, creates the single biggest challenge to an incoming CEO’s succession. The board plays a key role in providing a ‘safe space’ that the new CEO can grow into. This is a balance between transitioning at pace driven by commercial priorities while at the same time taking emotional readiness into account. This is where small things, like retaining the outgoing CEO’s office and agreeing protocols for communication can have a big impact.

Team Dynamics : How to ensure credibility and build trust at pace

Many CEO-successors make fundamental mistakes at the beginning, like demanding authority, exerting control and making changes before first listening and observing. This is often fueled by the perceived new authority, personal insecurity on the back of a successful prior CEO, and pressure to deliver immediately. If the incoming CEO was promoted from within, they face an additional challenge of treating past colleagues as direct-reports, rather than peers. Both work and personal relationships can be re-shuffeled and the ensuing confusion can erode trust. Seeing beyond these complexities, newly appointed CEOs are well advised to earn, rather than demand authority. To observe, listen, consult and align is a better recipe for success.

Mastering succession requires a combination of various factors: systems, processes, culture and organizational elements that reinforce each to enable a smooth transition. The succession process should proceed at pace, while ensuring no one key to the value creation plan is left behind. Humatica’s fact-based playbook to implement succession, including building the right foundations of trust, aligning the operating model, structures and roles; provides a low-risk path to success.

Board Stewardship : providing governance guardrails

Boards are shifting from treating succession as a one-off periodic review event towards an on-going strategic priority to be regularly debated and discussed. Responses will need to be adapted to each situation. However, Humatica’s founding principle of applying engineering systems analysis to organizations enables the identification and resolution of emerging succession risks.

Research ais clear. Organizations that anticipate and master CEO transitions create sustainable competitive advantage that extend beyond any individual leader’s tenure. Leadership pipelines become more resilient, institutional knowledge is not only maintained, but enhanced across transitions.

This requires collective commitment and taking the challenging path where more often the easier way would be to select a new CEO and get out of their way. In a world of increasing uncertainty where well-founded rules are being re-written the US$1 trillion question is: Will you leave senior management succession to chance, or utilize a proven approach to avoid the normal risks?

¹https://www.harvardbusiness.org/wp-content/uploads/2023/11/2021_05_the-high-cost-of-poor-succession-planning.pdf