By Rob Starr, Big4.com Content Manager.
CEOs and CHROs and boards need to ensure companies thrive in today’s dynamically changing landscape by placing the right talent at the top. PwC sees regulatory scrutiny, changing customer expectations and disruptive technologies necessitating executive teams that can respond to these challenges and “Building the bench: Strategic planning for CEO and executive succession,” highlights the latest trends driving the need for change in executive succession management. Bhushan Sethi, Partner, PwC, walked us through the highlights of the report recently.
What are the biggest reasons that organizations should have a good succession process?
- Boards have recognized the need to focus on succession planning.
o PwC’s Annual Corporate Director Survey indicates that 66% want more board hours dedicated to succession planning, and 24% of directors say they want “much more time” than in the past.
- The collateral damage from undermanaged succession can be enormous, creating risk of leadership vacuum, internal and external uncertainty, and loss of stakeholder confidence
- Conversely, effective succession management represents a substantial value creation opportunity, through the positive impact a well-conducted process can have on a company’s leadership and organizational performance
- Increasingly, activist shareholders are filing proposals for companies to disclose succession management policies
What are some of the evolving responsibilities for the management succession team and who needs to be on this management succession team?
- The Board of Directors. The board owns and is ultimately responsible for managing the process, including defining the profile of the future CEO and the selection criteria, collaborating with the incumbent CEO on developing internal candidates, overseeing an external search, making the final decision about the selected CEO, and managing the transition process.
- Chief Executive Officer. Ideally, the board owns the process but collaborates with the CEO. Together, they define the future CEO profile, identify and develop internal candidates, and evaluate outside candidates. The board assesses those candidates and ultimately decides on the next CEO, giving due consideration to the incumbent’s point of view about the potential successors. The CEO also helps manage the transition in a way that positions the next CEO, and the company, for success.
- Chief Human Resources Officer. The CHRO should bring the strategic know-how and technical expertise to the succession process. Ideally, he or she should collaborate with the CEO and chair of the board’s succession planning committee to design best-fit practices, provide the methods and resources to implement the approach, and keep the board informed about progress. The CHRO also is important in identifying and developing executive talent.
- Other executive leaders: Executive team members should be expected to identify and collectively review high-potential talent across all parts of the organization, and those future enterprise leaders should be given the opportunity to take roles in different units to accelerate their development.
What are some of the recent trends affecting the process?
- The roles of those involved in succession planning are changing. Boards today have greater responsibility for CEO and executive succession planning. CEOs, many of whom had previously owned the process, are determining how to adjust their roles and collaborate effectively with the board. Other C-suite executives are being asked to more aggressively and effectively develop potential successors and stronger supporting executive teams.
- Disruption in traditional business models is creating the need for a different set of executive capabilities. The accelerating advancement of technology and innovation and changing customer expectations are increasing the need for forward-thinking, tech savvy executives who can leverage analytics and envision business strategies that will drive future growth.
- Regulatory expectations for executive succession have raised the stakes for boards.
The US Securities and Exchange Commission (SEC) and other regulators have identified executive succession planning as a fundamental duty of the board, as well as part of the larger risk management picture. Companies must demonstrate that they have processes in place to support continuity of strong executive talent. Otherwise, they run the risk of regulatory sanctions, diminished trust among investors, and potentially declining stock prices.
How important is the relationship between the CEO and board in the process?
- Historically, CEOs have had much more influence, if not complete control, over the process of replacing themselves. Over the past decade, boards have taken ownership of the process, and there continues to be a good deal of tension in some organizations about who owns and does what in the succession process. Ideally, the board owns the succession process but collaborates with the CEO, who retains primary responsibility for developing CEO successors and executive talent.
- Directors should regularly review and advise on the executive development process, get to know and support the development of high-potential individuals, and advise the CEO. Collectively, the CEO and board should find creative vehicles for directors to engage with executives that go beyond the typically heavily scripted situation of having executives present in board meetings.
What needs to be done going forward?
- Four essential elements must be addressed effectively to achieve best-in-class CEO succession management
- Process rigor anchored in business strategy. Build a robust, data driven process that is anchored in strategy and business requirements.
- Leadership development focus. Focus on enhancing leadership and organizational performance, not just replacing the CEO. Accelerate the development of successors through targeted experiences, coaching, feedback, and knowledge transfer on priority topics.
- Board, CEO and executive collaboration. Build a true partnership between the board and CEO in planning and leading the succession management process, and effectively engage the CHRO and incumbent executives in the process.
- Management of political and emotional dynamics. Acknowledge and proactively address the rational, political and emotional issues inherent in succession management