Over the years I’ve been involved in more than a few searches for a new CEO, and, I have to say, it’s got to be one of the most nerve-wracking processes that a board of directors undertakes. There is just so much riding on that one decision. It’s a process that is fraught with risk – the risk of overlooking the right person and selecting the wrong person.
In recent blog posts, we’ve dealt with different takes on the board’s role in CEO succession – first, the challenge of naming an interim CEO to deal with an unexpected CEO departure, and then, managing an orderly process of long-term succession planning. With today’s post, we’re closing the loop with a deep dive into the selection of a new CEO.
In this scenario, the board knows about the current CEO’s departure well in advance – in the case of a planned retirement, for instance – and has the luxury of plenty of time to locate just the right person to be the next CEO. Let’s explore the process and the savvy director’s role in it. You had better hope that your board is good at making decisions, because this process features a lot of them, starting with whether or not to conduct a search.
To begin with, the board must decide whether to conduct a CEO search. If there is an up-to-date CEO succession plan, it may seem obvious that the board would simply turn to the leading candidate. If there is more than one, they would follow a rigorous process to choose the best candidate from among them.
But, in this most vital of decisions, board directors must ask themselves whether or not they should be looking further afield. The expert consensus seems to be that a robust selection process should include a search outside the organization.
“Even if you think you have the best internal candidate for CEO in the world, go ahead and conduct an external, wide search. This will validate your choice, not only in your own (board’s) mind, but just as importantly in the minds of the candidate and the rest of the management team and staff. Or, occasionally, it will yield an even better candidate!” – David and Debra Brown
My own experience has led me to the same conclusion. The boards that decided to cast a wider net and conduct an external search have not regretted the decision, even though the process can be time-consuming and costly. Spending the time and money up-front is more than worth it when you consider that choosing the wrong CEO can be even more time-consuming and far more expensive.
The decision to conduct an external search does have its negative consequences though. For instance, it’s important to be considerate of how the leading internal candidates may respond, particularly if they are not expecting to have to compete for the role.
The board’s next major decision is whether to strike a search committee and, if so, what will be its mandate and makeup.
In most cases, the board will establish a committee to lead the process. It’s simply not efficient or effective for the entire board to be involved every step of the way. It will be far easier for a smaller number of directors – a committee of three to five people – to be able to devote the necessary time (which is considerable) and schedule available dates.
Who should that be? Once again, I find that my experience is aligned with the experts’ views. Once assembled, you want your search committee to collectively include the following characteristics:
“Choosing a CEO is the responsibility of the full board, but picking the directors who will lead the process is critical. If the wrong people take charge, you’ll run into difficulties. Steer toward those who have earned their colleagues’ trust and respect.” – Ram Charan
Equally important is establishing the committee’s mandate. This can be as broad or as narrow as the board sees fit. What’s important is to establish the mandate up front and ensure everyone is on the same page. What exactly does the board expect the committee to accomplish? What is it empowered to do? How involved does the full board want to be? For instance, does the full board want to interview all candidates? Or just the short list? What reporting does the board want from the committee?
All of these details should be hammered out ahead of time to avoid confusion and resentment.
“It is very important to set the roles of both the search committee and the board at the outset of the search. Do not leave the matter ‘hanging,’ or much valuable time will be lost when it is most critical to make decisions.” – Ron Robertson
The next key decision is whether to hire a search firm and, if so, choosing that search firm. In all likelihood, your board will decide to use a search firm. External experts bring rigor, expertise, and broad networks to the task at hand.
Usually the task of choosing the search firm is delegated to the search committee. The committee should make sure the firm is qualified, connected, and familiar with your industry. A really important consideration is ensuring the right fit. Committee members will spend a lot of time with the search firm and will rely on them a great deal. A good working relationship is key.
The committee needs to be very clear about its expectations of the search firm and about the division of responsibilities – “who does what”. Above all, it is the committee who calls the shots. The search firm can offer valuable advice, but it is not the decision-maker.
“Let them be your arms and legs, even your ears and voice, but you must remain the directing mind.” – David and Debra Brown
If your board has an up-to-date CEO succession plan, chances are you will already have a needs assessment and CEO profile. If not, now’s the time to develop these documents, with the assistance of your search firm. Don’t settle for a generic list of leadership qualities – although you can use one as a starting point.
Instead, the search committee needs to think long and hard about the essential skills and qualities they are looking for in a CEO. That’s why it’s essential for the committee to include someone who has a deep understanding of the organization’s current status and its long-term strategy. What are the challenges the new CEO will have to deal with? What opportunities could present themselves? With that in mind, a customized set of competencies and attributes will emerge to focus the search and the selection process.
“Directors who make great CEO picks … start by understanding the current and future requirements of the job, zeroing in on the critical capabilities that will make or break the company. The result is not a laundry list of leadership traits any CEO should have, nor is it a single item. It’s a strand of two or three capabilities that are tightly interwoven and required for the new leader to succeed.” – Ram Charan
Here’s where the search firm will earn its money. They will find suitable candidates, pre-screen them, schedule interviews, perform assessments, conduct background checks, check references, and perform many other valuable functions. Lean on them as much as possible to ease the committee workload. That’s what they’re there for.
Designing the interview process is not one of those tasks that can be fully delegated to the search firm, although they can certainly support it. The committee must decide on a set of questions whose purpose is to assess the candidates and (hopefully) reveal the ideal one. Interviewing is a skill that not every director has developed. A committee member with HR or recruitment experience can play a valuable role at this point.
The interview process will likely take place in stages as the initial pool is whittled down to a short list of candidates. Assessing the short-list candidates using psychometric testing is becoming more common these days. At this point, the full board will likely want to interview the final one to three candidates. The concern at this stage is more about “fit” than anything else – the board wants to make sure they are comfortable with the committee’s recommendation.
“Ultimately, every board member has to be comfortable with a CEO appointment. [One former CEO] says, ‘I always thought it was important to go around the table at the board meeting and ask every director to weigh in on the choice.’” – Ram Charan
You’re almost done! If the board approves the committee’s recommendation, and all the background and reference checks are positive, then it’s time to negotiate a contract with the successful candidate. This can actually be a long, difficult process. Get the experts to help with it – legal, HR, and the search firm all have a part to play.
Communicate the new hire to all the key stakeholders, in the right order. Start with the unsuccessful candidates. You might ask the search firm to communicate with external candidates, but the committee chair or the board chair should sit down privately with each unsuccessful internal candidate. Handling this conversation sensitively can influence how the person responds to the new CEO and how they view their future with the company.
Finally, ensure a good onboarding process for the new CEO – this clearly needs to be customized to the individual’s background. Your new CEO is bound to be a self-starter who will quickly take this into their own hands, but do check in with them and be available with support where needed.
Most importantly, keep an eye on the new CEO’s cultural fit and relationship with the management team. If problems start to arise, you can try to help them to adapt to their new environment.
“Almost half of the executives who departed [within two years of being appointed] were perceived as having one thing in common: They had failed to adapt to the new organization’s culture. ‘Poor fit’ is a term often cited as a reason for departure, but this explanation assumes that behavior is rigid; it overlooks the ability of the CEO to adapt.” – Ron Robertson
You might feel excluded and out-of-touch if you aren’t on the search committee, or you might just be relieved to avoid all that extra stress and time commitment. In any case, you still have a role to play, even though it is less intensive.
Each of the decision points listed above is an opportunity for you to add value through your questions and comments. Exercise your independent thinking and speak up if you have concerns. Watch out for biases and preconceived notions along the way, including your own. And keep an open mind – in the end, the best candidate may not be who you thought you were looking for.
“Rigorous succession planning is essential. But it takes you only so far. Eventually a decision must be made, and when it comes to choosing among two or three final candidates, judgment really matters.” – Ram Charan
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Scott Baldwin is a certified corporate director (ICD.D) and co-founder of DirectorPrep.com – an online hub with hundreds of guideline questions and resources to help prepare for your next board meeting.
Share Your Insight: In your experience, what has worked well, and not so well, in CEO selection?