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CEO succession is one of the most complex events in an organization’s lifecycle and incidences of succession are increasing. Of the 1,452 CEO changes that took place in 2018, 154 were in the financial sector, making it the second-highest industry by number of CEO shifts. Change can be difficult, but fostering strong relationships between the Board and members in the C-suite can lead to a smoother CEO succession process. Below are the best practices for Boards to facilitate the succession process.
1. Empathize with the CEO
While CEOs recognize the importance of the Board engaging with management, they can often resist perceived ‘interference.’ This is typically underpinned by two concerns. First, the board member may distract executives, and their teams, from their day-to-day focus. We all know of the extra (non-value adding) activity that takes place as a team gets ready for the board member’s arrival! Second, the board member may give the leader feedback or advice that is at odds with the key developmental messages the CEO is focusing on. The best way to alleviate CEOs’ apprehensions over Board engagement is to ensure alignment between the Board and the CEO on key messages that need to be communicated with executive team members.
2. Contract upfront
Board members may have different implicit or explicit understandings of what their roles are in supporting, challenging and developing executives. Often, these are forged through their own experiences as executives engaging with board members. Ongoing, open and robust dialogue between the Chair and CEO are essential. They should agree on the degree, frequency and type of engagement that is needed between the Board and the executive. This can help drive greater confidence and consistency on both sides. This includes the CEO explicitly agreeing with the Chair about when their team members will take the lead and present Board papers without the CEO’s input. Oftentimes, CEOs can be accused of trying to ‘rescue’ their people when they are challenged by the Board.
3. Make the unconscious conscious
Any talent decision is subject to potential bias. This is particularly true regarding CEO selection. Our work with boards suggests that by the nature of their interactions with executives, board members may be more prone to three biases. The first type of bias is primacy, or the idea that judgment is influenced by notable instances where the executives shine or fail. The second is recency, whereby the Board focuses on the executive’s current role and most recent success or failure, without paying sufficient attention to their achievements in previous roles or organizations. The third bias is affinity, or advocating for those who are similar to board members in some important way, e.g., a similar career history. Forming deeper, more complete understanding of each executive can help break down bias and provide richer data that will enable a more complete picture of the executive to emerge.
4. Ensure fair and consistent exposure between the Board and executives
In a recent client engagement, 50 percent of the potential succession candidates were ‘known much less well’ or ‘less well’ than the other candidates by half of the Board. This was the result of several factors, including new board members who had less knowledge of some of the C-suite, natural styles of engagement among the executives (some reached out to the Board more than others) as well as interactions through business events. This insight helped the client orchestrate opportunities for board members to interact with those executives whom they knew less about and ensure consistent exposure across all executives.
5. Engage with purpose
The risk for board members is that they see executives almost exclusively in the boardroom setting, where some executives will shine but others will not. There are a range of opportunities that are part of the natural rhythms of the business where the Board can meet with executives. These include site visits, study tours, town halls, development programs, investor road shows and one-on-one mentoring discussions. Seeing all executives across a range of forums helps the Board develop a well-rounded and nuanced understanding of individuals. Not everyone will shine in the boardroom. If that is the only ‘thin slice’ a board member has in evaluating the leadership of an executive, they risk forming a narrow view of potential and over-indexing on a small number of CEO capabilities.
6. Start early
Interacting with members of the C-suite works best when it is built into the rhythm of the business and talent management rather than a sudden process introduced for the sake of CEO succession. Strong relationships build over time, are informed by multiple data points and typically require a challenge to have been worked through together. It can take longer to truly get to know some people than others. If an organization is as concerned about the character and values of the potential CEO as they are about their experience and capability, the engagement between the Board and the C-suite needs to start early on. The sooner interaction between board members and executives begins, and the more regular it is, the more likely executives are to show up authentically and have meaningful conversations.
It would be natural to read the above and wonder if the more deeply the Board gets to know an executive, the more likely they are to advocate for them. A recent client engagement demonstrated that intimacy, or how well a board member knew a succession candidate, was not correlated to advocacy, or the degree to which they championed for that candidate. The stronger influences on advocacy were how recently the board member had interacted with the executive in question, or the degree to which they already had a strong view and were looking for confirming evidence. This suggests that knowledge in and of itself does not necessarily impact the process. Rather, the deeper the knowledge of the individual, the more balanced and measured a board member’s view of the individual will be.
Forging deeper, trusting relationships allows difference to thrive and enables executives to be their true selves. Genuine connection humanizes Board interactions and means that conversations are more authentic and less guarded. This enables more challenging discussions, as each party feels comfortable enough with the other to say what really matters. As a result, the ultimate decision as to the best CEO candidate for the organization will be informed by a rich, nuanced view of each candidate rather than by a series of snapshots in the boardroom.
Carmel Pelunsky is Managing Director, APAC at YSC Consulting.