After the handshake

The mood inside the boardroom was celebratory. For months the directors of this multibillion-dollar industrial and consumer-goods company had been searching for a successor to their longtime CEO. After interviewing multiple candidates, they’d unanimously voted to make an offer.

The outside recruit — let’s call him Harry — had an exceptional record of growing sales while running a large division of a multinational known as a training ground for world-class CEOs. The board announced the appointment at the annual meeting; shortly afterward, the outgoing CEO departed, and Harry started. The directors congratulated themselves on a job well done. The arduous work of succession was complete.
Except it wasn’t, because the board, the outgoing CEO and the chief human resources officer hadn’t laid the groundwork for Harry to succeed. As a result, the new leader was not prepared as he got acquainted with the people he’d inherited and learned the political dynamics of the senior group.
When, at the first board meeting, Harry laid out an aggressive new strategy, the directors were taken aback. They’d hired him to drive growth, but they’d expected an incremental approach rather than a rapid overhaul.

They resisted, frustrating the CEO. Fifteen months after signing him, the board forced its star hire to resign — and the company’s stock dropped sharply at the news.
A SHARED RESPONSIBILITY
Whether new CEOs are hired from the outside or promoted from within, they should be aware of a daunting statistic: One-third to one-half of new chief executives fail within their first 18 months, according to some estimates. Some of these flameouts can be attributed to poor strategic choices by the new leader, and some result when the board makes an imperfect choice. But a close look shows that it’s rarely that simple. When a succession fails, the responsibility is almost always shared.
Although many people tend to think of succession as the process of identifying and assessing internal and external candidates, defining the characteristics the next CEO will need and ultimately settling on a final choice, that’s really only half the job. Succession should include activities that occur after the new CEO takes the job — activities designed to maximize her chances of success.
THE THREE VARIABLES
In the creation and implementation of a comprehensive CEO transition process, three key variables affect structure and timing. First, is the new CEO from inside or outside the company? Second, will she take on that role immediately or spend time as a “designated successor,” working alongside the outgoing CEO while typically carrying the title of president or chief operating officer? Third, will the outgoing CEO continue to be a presence in the company, as chairman of the board or as an adviser?
Many companies skimp on or forgo a transition program for an internal candidate who is promoted to CEO. On the surface that makes sense: An internal candidate has already navigated a career with the company, so onboarding may seem superfluous. However, even an internal candidate will benefit from a transition program that recognizes several specific challenges to be faced in the new job. For example, most people promoted from inside have never been a CEO before and must learn to handle a level of responsibility for which they have had little preparation.
THE ROLE OF THE OUTGOING CEO
In some cases the outgoing CEO plays no role in succession — such as when she has been fired or pushed out. But in a planned succession (which typically involves a retirement), the outgoing CEO can help the incoming one adjust to and understand the company.
An incumbent CEO plays a particularly important role if the successor joined the organization as an heir apparent. In these situations, incumbent CEOs direct the transition process. They must remain fully engaged with their current duties and responsible for short-term performance, but they should also devote significant time to ensuring their eventual replacements’ early success.
THE ROLE OF THE CHRO
Although the board is accountable for CEO succession, and an outgoing CEO should direct the process, someone needs to attend to the day-to-day details. That person should be the company’s chief human resources officer. CHROs should be deeply involved in all aspects of succession and will thus have an advantage in organizing the transition.
CHROs should aim not only to coordinate a new leader’s transition into the company, but also to become her primary counsel on people, politics and culture. In this regard they should think of themselves as communicators, interpreters and sounding boards. Ideally, a CHRO can also offer candid feedback on how the new leader’s early words and actions are perceived in the organization.

 

THE ROLE OF THE BOARD
For directors, an important question during a CEO transition is how much distance they should keep. They cannot and should not micromanage — but there is danger in being too remote. The best boards strike a fine balance between being uninvolved and overinvolved.
Clear expectations are among the most crucial things directors can provide. One way to start the conversation is for the lead director to ask the new CEO to prepare answers to three questions: What information do you need from the board to be able to do the best job you can? What behavior on the board’s part would best enable us to have a trusting relationship at board meetings, between them and in one-on-one conversations? From your experience during the search process and in your first meeting or two as CEO, what one thing about how the board operates would you change to help make our relationship all it must be?
For a board, a CEO succession is a critical moment in the life of the company — a time when the directors should expect to be meeting, talking and contributing more than they ordinarily do, much as they would during a merger or an acquisition.

 

CONCLUSION
Even when a company takes the comprehensive approach to succession suggested here, it’s important to recognize that the formal transfer of title is not the end of the process. The new leader cannot be considered truly embedded until he wins the loyalty of the organization’s most influential managers. That may not occur until months after the formal handoff of power. Former Xerox CEO Anne Mulcahy describes observing such a moment in a meeting after the title had passed to her chosen successor, Ursula Burns: “Everyone was looking at her rather than me — the whole team’s attention had just shifted, without a lot of drama. That’s the way it should be.”

 

 

(Dan Ciampa is a former CEO, an adviser to boards and chief executives, and the author of five books, including “Transitions at the Top: What Organizations Must Do to Make Sure New Leaders Succeed” and “Right From the Start: Taking Charge in a New Leadership Role.”)