August 28, 2024
2:25 PM
By Kimberlee Henry
As the corporate landscape continues to evolve, the process of CEO succession planning is undergoing substantial changes.
And within these changing business dynamics, there’s a clear trend towards organizations seeking new leadership externally. PwC’s data reveals that 29 percent of S&P 500 companies that replaced their CEOs in 2020 chose an outsider, a rise from 21 percent the previous year. These evolving conditions necessitate a strategic shift in how CEO appointments are made—towards emphasizing specific skills and experience such as merger transactions, digital transformation, and managing flexible workforces, as well as keeping CEO succession planning top of mind.
In today’s fast-paced business environment, knowing how to create a CEO succession plan is a business imperative—a leadership transition can significantly affect a company’s performance and future, and yet it can prove challenging for many organizations, leaving them unprepared for inevitable leadership changes when they come up.
This is where CEO succession planning comes in. A continuous process that ensures a company has a suitable successor if the current CEO leaves, cannot perform their duties, or is unexpectedly dismissed, the chief executive succession planning process involves identifying and developing talented executives capable of filling the leadership role, and thus helping to prevent a potentially damaging leadership gap.
Key focus areas in any executive transition plan may include adapting to changing customer demands, climate change, and technological advancements. The selection process must consider the present and future strategic needs and the company culture, as well aligning future leadership with strategic goals, managing risks, and maintaining stakeholder confidence. Ultimately, continuity is key; organizational stability and success should not be at risk during the executive transition period.
Therefore, managing the CEO and executive succession and transition should be a collaborative process that involves vital organizational stakeholders; it’s not a solitary task, nor should it be left solely to the executive themself to pick a successor. One big CEO succession plan tip—stakeholders involved should include the following:
With so many stakeholders involved, managing executive succession planning can be complex. Using a structured framework like a CEO succession plan template or CEO transition checklist ensures a comprehensive approach. These frameworks outline crucial steps and elements—from candidate identification to the transition process; from vetting potential internal successors to creating a clear definition of done for the transition itself—and can help to ensure even the largest multinational organizations demonstrate a people-centric approach to executive succession planning.
Any executive transition plan should begin with the board of directors reaching a consensus on the skills, experience, and personal qualities a new CEO should embody to execute the organization’s strategic plans effectively. This could be where the first challenges arise: in the relationships, in resistance from current leadership, in identifying and agreeing on suitable candidates. Should the successor come from inside or outside the organization? How can you maintain confidentiality while the process is underway? These can all prove challenging to CEO succession planning.
However, a potential obstacle to initiating succession planning early could be the performance of the current CEO. As a CEO succession plan tip, boards can overcome this by engaging CEOs in transition planning from their first day, setting clear expectations, and making succession planning a regular conversation. This approach can alleviate much of the anxiety around the succession process and ensure smooth transitions. The board should ask for regular updates from the CEO and head of HR on progress toward identifying and developing internal candidates.
Successful transition planning also depends on the clarity of roles within the board. While executive succession planning is generally a full board responsibility, defining who leads the process can be challenging. Some boards form specialized committees for this purpose. PwC’s data suggests that manufacturing and financial services sector businesses often have a dedicated CEO succession planning committee; this is a great idea because establishing a solid pipeline of potential CEO candidates is vital for any organization. Directors should understand internal and external talent markets deeply and prepare for the implications of competition among internal candidates for the position.
Onboarding the new CEO effectively and transparently communicating the succession process to stakeholders needs careful consideration, too. A comprehensive transition plan and regular communication can pave the way for the new CEO’s success and maintain transparency with stakeholders.
A well-planned succession strategy can significantly contribute to a company’s stability and success in an era of frequent CEO transitions. Organizations can navigate the ever-evolving business landscape effectively and efficiently by adopting a proactive, regular, and transparent approach to the CEO transition plan.
Another significant aspect of a CEO transition plan is preparation for emergencies. The corporate world is fraught with uncertainties, and a robust succession plan should identify potential interim candidates who can take charge in case of a sudden CEO departure—whether by choice or by push.
The risk of emergency CEO succession is a big driver in having a well-documented succession plan with a clear timeline. The board should lay out the goals of the process, the frequency of discussions, and the steps of the selection process. The succession plan should undergo regular reviews and updates to ensure continued alignment with the company’s evolving needs.
A CEO succession plan should ideally include:
Given the risk of an emergency CEO transition, the plan should also include defining immediate actions, establishing rapid decision-making processes, and developing a crisis communication plan. These aspects can be tackled early, but should be reviewed regularly.
Let’s explore CEO succession plan tips: these 10 vital steps will equip you with a well-crafted CEO succession plan template, regardless of whether the CEO succession plan is deployed in an emergency or a managed way.
Prioritize the future strategic direction of your company by defining the type of leader your organization needs. Consider expected challenges and the leadership style that will tackle them effectively. For example, a tech startup focusing on AI might require a leader with a strong background in artificial intelligence and innovation. The leader should also have experience scaling startups and a leadership style fostering creativity and collaboration.
Choosing the right technology can streamline your succession planning process, enhance communication, and provide valuable data to inform your decisions. Consider how you will see and compare candidate data in an unbiased way. You want a clear visual of your organizational structure that highlights gaps and opportunities for development and facilitates collaboration among stakeholders. Consider leveraging software and systems that integrate data from HR platforms for performance tracking, applicant-tracking systems, and talent management, or collaboration tools for communication among the planning committee.
For instance, a biotechnology firm could leverage its existing HR system and data visualization tools to identify high-potential internal candidates and track their performance. The data, when presented in an accessible way, could help make informed decisions, contributing to a smoother transition while ensuring the candidates who best understand the firm’s nuanced subject matter rise to the top.
Visualize your organizational structure to identify and develop high-potential candidates within your organization before a vacancy arises. Doing so can reveal gaps and opportunities for employee development. For example, a large-scale manufacturing company may implement a robust employee development program to identify potential leaders from various departments. The company can train and prepare these individuals using performance data and regular feedback sessions, ensuring a pool of talented candidates is ready to step up when needed.
While promoting leaders from within has benefits, sometimes the necessary skills reside outside your organization. Adopt a balanced approach to assess both internal and external candidates. A global software firm seeking a new CEO with specific experience in cloud computing could use its succession planning tools to evaluate internal candidates alongside external candidates to ensure a balanced view and a consideration of the best fit for the role—bearing in mind “best fit” for the strategic direction of the company may require skills and experience that no internal candidate has.
The insights of the current CEO can provide an invaluable understanding of the role and its requirements. By mentoring potential successors, they can effectively prepare them for future responsibilities. For instance, knowing he would retire in two years, the CEO of an established logistics company might begin sharing his insights and experiences with potential successors. He could create a mentorship program, which allows potential leaders to gain first-hand knowledge and prepare for their upcoming responsibilities.
Unforeseen circumstances may necessitate an immediate leadership change; having an emergency succession plan in place safeguards your organization. Imagine a consumer electronics company where the CEO had to step down unexpectedly due to personal reasons. An emergency succession plan, which includes a shortlist of capable interim leaders, ensures a swift and smooth transition with minimal impact on business operations.
The handover phase from the outgoing CEO to the successor is critical. A detailed CEO transition plan guides this phase, minimizing disruptions to your organization. When a planned CEO transition occurred at a leading automobile manufacturer, the outgoing CEO and successor worked together, using a comprehensive CEO transition checklist. This roadmap ensured a smooth transition with minimal disruption to the organization’s workflow.
As your organization evolves, so should your CEO succession plan. Regular reviews and updates ensure it stays relevant to the changing needs of your business. For instance, an online retail company, in response to the changing business landscape, reviews and updates its CEO succession plan every six months, ensuring alignment with its current objectives and the industry’s evolving dynamics.
Transparency is key in succession planning. Inform key stakeholders like the board of directors, management team, and employees about the plan, preparing the organization for the eventual leadership transition. A community-based nonprofit organization, for example, shares its succession plan with its members, volunteers, and board of directors. Clear and open communication keeps everyone informed and prepared for upcoming leadership transitions.
Platforms like OrgChart make succession planning efficient. By helping to visualize your organizational structure, identify potential successors, track key metrics, and facilitate real-time collaboration, OrgChart streamlines your CEO succession planning process. Technology can make executive succession planning much more streamlined: consider a national energy company that integrated its HR platform with a project management tool. This allowed the company to track key performance metrics and promote collaboration among teams, enhancing the efficiency of their succession planning process.
CEO succession planning is a critical process that can define your organization’s future—yet it doesn’t need to be a daunting task. By leveraging the right tools, you can streamline your succession planning process and make it a natural part of your company’s growth journey.
OrgChart provides an intuitive interface and robust features to help you create, manage, and visualize your CEO succession plan. By providing real-time visuals of your organization’s structure, tracking crucial metrics, and facilitating collaboration, OrgChart is your ally in making strategic decisions and simplifying HR processes.
Don’t leave your organization’s future to chance. Secure your legacy and pave the way for a future of continued success with OrgChart.
A seasoned marketing leader with two decades of experience in fast-growing tech organizations, B2B SaaS, and professional services. Known for her results-driven approach and people-first leadership style, she has a proven track record of creating innovative marketing strategies that resonate with both new and existing customers.
As an author, Kimberlee draws from her deep understanding of customer behavior, market trends, and hands-on leadership to offer valuable insights that educate and empower audiences.
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