Authored By: Roger Pearman and Robert Eichinger
Do you have 57 candidates lined up and in development for your CEO role? Yes, 57!
CEO succession is a constantly hot topic.
Boards are particularly interested in who the next CEO might be. Next, they want to know who the backup candidates are for all of the C-Suite positions. Then they want to know about successors for the other key roles and positions. The Annual Talent Review process is designed to address those concerns.
CEO succession is more important today than in the past.
The tenure of CEOs is constantly decreasing. It is now down to about 7.5 years on average for large publicly held organizations. In that average number are long living, long tenured 30-year CEOs, balanced by some less lucky organizations that are changing CEOs at a frightening frequency, almost yearly.
The job is bigger, more global, faster paced, more competitive and digital. It oversees a more diverse workforce, is often public, and is likely to require more travel distance to serve in the role.
There are fewer vetted candidates. There are large demographic shifts with more top executives retiring than ever. Fewer are willing to climb the corporate ladder. More are interested in work/life balance and are starting families later. Characteristics to be effective and successful are known but can be rare to find.
An internal placement of a top executive is more valuable than an outside candidate UNLESS the current senior managers have lost touch with the market and a dramatic change is necessary to wake up the organization. In that case an outside candidate is better. Outside candidates spend less time in the role. If they are plucked and placed once, it is more likely that they will respond to the search siren again. Their turnaround success is often tempered because of the size of needed change and the rejection of the existing swamp of the status quo.
So, it would be best if we replace retiring or departing CEOs and senior officers with someone from inside the organization who is aligned with the now and near-term future of the enterprise.
We have noticed in our combined 100 years of service, that current CEOs begin to get serious about successors toward the end of their tenure. We are called into consultations repeatedly by CEOs with two or three years left in their tenure and presented with “I’m not sure I have a replacement!”
It takes 10 years or more to get a great CEO ready. If you don’t have one of those now, it’s unlikely we can help other than to share with you the contacts we have at the big 5 search firms.
The better system is to have at all times an identified chain of people in your organization that are heading toward the CEO office and other C-Suite positions.
Consider Queen Elizabeth and Prince Phillip. At birth, they knew that Charles and then William were going to be Kings if everything worked out as usual. So, they have had 65 years to prepare! Consider Henry Ford. He and his wife knew that Edsel, at birth, would mostly likely head up Ford Motor Company at some point. All family-led large organizations have children and close relatives that need to be prepared for future leadership roles, and they have a lifetime to do it. Everything they do with offspring is with some consideration for future exposures and skills needed. The best schools. The best organizations to join. The best people to know. The best learning and development jobs.
If you will consider an organization as a family, the same process can be followed. All employees are in the family and all are possible future leaders.
A Strategic Succession Planning Scenario
Specifically for the CEO role, the average retirement age is decreasing and is now about 63. If they have been in the role for 7 years, they were 56 when they took the position. They are now 62 and getting ready to name their successor.
At that time, there would be a 55-year-old that could be the next CEO. Most likely she is now an SVP of something.
And there is a 48-year-old that will someday be CEO, but for now will replace the SVP. This person is also most likely a new VP of something.
There is a 41-year-old that is currently a Director.
There is a 34-year-old senior Manager.
There is a 27-year-old MBA senior individual contributor.
There is a 21-year-old college graduate in their first real job.
So, there are 7 CEOs, current and future, working for the organization today. If they are not in your organization today, they are working someplace else. Your best bet is to grow them yourself rather than have another organization develop them.
Know it’s going to be more complex than ever. The pool of candidates will be more diverse and different to develop. And there will be fewer to choose from.
The way to do this is Vertical Succession Planning for the top roles and jobs. Instead of the annual review being about all Directors, it should be about the few directors who have the best chance to succeed at the top.
For this to work, because of the possibility of making the wrong calls and spurring unwanted turnover, you have to have multiple candidates at each target career stage.
|Level||Needed Verified Candidates|
|Senior Manager (32-35)||10|
|Individual Contributor (21-23)||20|
You need 57 candidates for a “forever flow” of effective and successful CEOs, while striving to keep the non-winners in the organization in other senior positions. This chain of candidates would be constructed for each target C-Suite role and key positions. Daunting? Yes, but less so with planning, good tools and a dedicated and accountable team.
For each class, the development plan is designed against what the world and work is likely to be when that person takes a senior position.
If ten years out, the organization contemplates having a major presence in Asia, which it doesn’t now, and 6 of the 57 candidates need to work a few years in that region. If you are going to be a significant player in digital sales and remote delivery, then 6 of the 57 candidates need to start working on that project. If your industry is going to be more tightly regulated in the future, candidates have to be given opportunities to learn the regulatory ropes to be able to lobby.
The better (and more accurate) the calls on future talent, the more valuable the activity will be. It is well known what these 57 people have in common. The characteristics of talent are well understood. So, first, commit to vertical succession planning. Then get the call right. And then follow up with the best aligned development for however many years the class has left. No more need for search firms. Grow your own. You’ll increase your long-term talent certainty and give your Budget Director something to smile about.