Key person risk - by definition, it’s the risk carried by an organization that depends to a great extent on one individual for its success. From the board’s perspective, the organization’s primary dependence is on the CEO, the person through whom all good things happen! From the CEO’s perspective, the key person in the organization might be someone else - the lead revenue generator, the head of creative content, the inventor, the chief IT architect, or the morning show host.
What happens when, all of a sudden, the board’s key person departs? The CEO, the ship’s operational rudder, is gone. “What does our CEO succession policy say? We don’t have one? Oh, okay … I didn’t know that. So where do we go from here? We’d better call a meeting.”
I don’t mean to make light of a serious situation. Especially today during a pandemic, when the frequency of sudden departures of CEOs, for health or performance reasons, has ratcheted up.
Ideally, the board would have a policy in place setting out an orderly process where an existing senior leader has been identified as a potential future CEO, or has the expertise and experience to take on the CEO role over time. In the case of a CEO’s sudden departure, the transition would still be relatively smooth as the new CEO (or interim CEO) would be known to the board as a key part of the management team.
But what if that’s not the case? What if there is no succession plan, or no senior staff who are ‘CEO Ready’?
“Do you see any situations where the board chair or a member of the board would step in to take on the interim CEO role in the event of a sudden departure?”
I posed this question to twenty savvy directors in our subscriber network. I received a variety of incredibly well-reasoned responses. The pros and cons and the spaces in-between all made sense. Many of these directors have had to face the same question in real time. Some are dealing with it right now as their boards govern organizations where the workforce is enduring escalating employee stress levels.
Boards must pay attention to CEO succession. The savviest directors among us have a key role to play to ensure their boards are asking the right questions ─ better and faster and more to the point than ever before.
Getting straight to the responses I received and then working backwards, the conclusion is probably what you would expect. Just as the right CEO leadership style is situational, so too is the answer to the question of whether the board chair or other director should take on the interim CEO role. Half the respondents agreed to the possibility and the other half disagreed in the strongest terms.
Because it’s complicated. Because too many boards don’t have policies to guide them in the event of a sudden departure. To drive us a little more bonkers, even if they do have a policy, it may not be current or it may not reflect today’s needs. Maybe the board hasn’t reviewed the policy for a few years and the organization’s talent pool has changed. Or maybe the organization’s strategic priorities have changed and the policy hasn’t kept up.
There are a couple of things about which everyone agreed ─ well-run boards should have this discussion at least annually, and they should have a CEO succession policy tailored to the size of the organization.
Small not-for-profits may not have the resources to pay for C-suite level talent behind the CEO, while large organizations may have the luxury of more than one option. Some may be able to afford to hire an external executive resource to ‘hold the fort’ while a CEO search gets underway. One option frequently mentioned was to bring back a former board chair to run things for a defined period.
Our Savvy Director network also agreed that a board member or board chair who agrees to serve as an interim CEO should not remain as a voting member of the board.
“If the board is managing, then who is overseeing?”
“It is difficult to oversee that which you do.”
Just to keep things interesting, there is an alternative view.
“There are a number of scenarios whereby for a number of reasons, the board does not feel that any of the existing team have the overall leadership and calibre to take on an interim CEO role and in that case, it can be very beneficial for either the board chair to take on an “executive chairman” type role on an interim basis or one of the board members with strong executive experience to take on the interim CEO role. This can happen particularly in a severe crisis where if the board aren’t quite sure that they have a sufficiently strong leader within the exec team who could take on the CEO role, they can default to a safe pair of hands within the ranks of the board who they know will be able to help navigate the organisation through the crisis.” - Kieran Moynihan, Board Excellence
The intent of my question was to get us thinking about what we would do in the event of an emergency succession event. In their book, Governance Solutions, David Brown and Dr. Debra Brown discuss CEO Succession as a three-tiered process:
“Succession starts the day you hire a CEO, and it never stops. It is a continuous three-tiered process that takes time, thought, and strategic insight. Formalizing a process is the best thing the board can do to make itself ready for a change in CEO. After all, the succession planning process is first and foremost a business process that a board puts in place to manage risk.”
─ David Brown and Dr. Debra Brown. ‘Governance Solutions - The Ultimate Guide to Competence and Confidence in the Boardroom.’
The rest of this blog will focus on the emergency succession scenario. We’ll return with more in-depth discussion of the longer-term perspective in future editions of The Savvy Director™.
If your board is wrestling with the decision of whether to approve the board chair or another director as interim CEO, and you don’t have an up-to-date policy in place, the savvy director within you will want some discussion points to serve as guiding principles for the board’s decision.
Refinement of these guiding principles could form the basis for a new or updated board policy.
The bottom line is that the best course depends on the circumstances of the CEO departure, the composition and skills of the board, and the board’s confidence in the remaining management team.
In the end, it’s up to your board to decide whether or not it’s appropriate for a board chair or board director to fill the interim CEO position after a sudden departure.
In your deliberations, you might find it interesting to consider the pros and cons that emerged from our Savvy Director network. Below are some of the comments I received (only slightly edited).
… the following Savvy Director subscribers who made a tremendous contribution to the content of this article (listed in the order we received their responses). Each of them would be a tremendous addition to any board.
Carol Bellringer, Steve Mallory, Karen Swystun, Ken Holland, Ken Lamoureux, Stuart Duncan, Sharon Mathers, Dr. Aaron Chiu, Greg Doyle, Marilyn Brennan, Linda Brazier Lamoureux, Greg Arason, Judy Murphy, Catherine Kloepfer, Brian Hayward, Barry Feller, Dr. Jerry Gray, Léo Charrière, Brenda LaRose and Kieran Moynihan.
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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: What are your lessons learned on a board from a CEO succession experience?