What boards get wrong about CEO succession

Most CEO succession processes start with the question of who. They ask it earlier than they used to, with more rigour, and often with more candidates in mind. This is, on balance, progress.

But it remains the wrong question to start with.

The more useful question — and the one that takes far longer to answer well — is what. What is the firm becoming, what will it need to be in five or ten years, and what kind of person leads that transition? Most boards approach this question late, briefly, and largely in the language of the firm as it already is. The result is a succession process that is well-executed on the search itself but produces a CEO who is a closer match for the firm of the last decade than the next.

The conversation that doesn’t happen

In a healthy succession process, the board, the outgoing CEO, and the firm’s largest institutional investors are aligned on a small number of specific things about the firm’s next decade — its likely shape, the central commercial questions, the principal risks. They are aligned not on a single answer but on the shape of the question. From that alignment, the brief for the next CEO is derived, and from the brief, the search.

In most succession processes, this alignment is assumed but not built. The board has views, but rarely articulated views; the CEO has views, but rarely shared views; the investors have views, but views the board has not asked for. The result is a brief that reads precisely but in fact compresses unresolved disagreements into ambiguous phrases — “transformational leader”, “with the credibility to drive change”, “a commercial operator at heart” — that survive the search by meaning different things to different people.

The succession process then becomes the moment in which these disagreements are surfaced. The candidates differ in ways that map onto the unresolved questions. The board, asked to choose between them, finds itself debating not who the right person is but what the firm needs. The conversation that should have happened twelve or eighteen months earlier happens now, under pressure, with candidates in the room.

The two-phase discipline

A serious succession process has two distinct phases. The first is advisory, runs over months rather than weeks, and ends with a brief the board has actually agreed on. The second is search, runs over twelve to sixteen weeks, and ends with the appointment.

In our experience the first phase is what determines whether the appointment succeeds. It is also what most boards under-invest in. The reasons are predictable — it is uncomfortable, it surfaces disagreements that are politically expensive to surface, and it does not generate the visible artefact (a longlist, a shortlist, an offer) that boards instinctively measure progress against.

A good search firm will push for the first phase even when the client wants to skip it. A great search firm will refuse to begin the second phase until the first has been done.

The institutional investor question

Most boards underestimate how much their largest institutional investors have already thought about CEO succession, and how willing those investors are to share that thinking — to a degree, and with the right framing.

We have, repeatedly, run private conversations with the top five or six investors of a firm preparing for CEO succession. These conversations are not negotiations. They are diagnostic. What the investors believe about the firm’s trajectory, what they would want to see in the next CEO, what concerns they have about possible internal candidates, what they would consider a misfire. The aggregate of these conversations is often the most useful single document in the eventual brief.

It is also a document that is significantly harder for the board itself to obtain than it is for a trusted external advisor to obtain on the board’s behalf.

The internal candidate problem

Most CEO successions are at least nominally open to internal candidates. Most external searches that follow the assessment of internal candidates conclude that the internal candidates were not yet ready.

This is sometimes true. But it is, equally often, a failure of the assessment process rather than a failure of the candidates. Internal candidates are evaluated against an idealised brief, against external candidates who have been pre-selected to be plausible, and by board members who have known them for years and have absorbed both their strengths and their limitations to the point of taking them for granted.

We have argued, with some success, that internal candidate assessment should be done separately from external search, run by a separate team within the search firm, and concluded before external work begins. The internal answer should be decisive on its own terms, not by comparison.

The role of the Chair

The Chair has the central role in CEO succession, and most Chairs underestimate how much of the work is theirs. The role is not to manage the search. It is to hold the firm’s view of itself together while the search is running — to maintain board cohesion, manage the outgoing CEO’s transition, hold the institutional investor relationships, and arrive at the appointment with both the board and the new CEO ready for the partnership that is about to begin.

A Chair who has prepared properly for succession is rarely, if ever, in a hurry during the search. They are often in a hurry beforehand.

What good looks like

A serious CEO succession process, done well, takes between eighteen months and three years. The visible search work is twelve to sixteen weeks of that. Most of the time goes into the work that makes the search work.

That is uncomfortable to write because it is uncomfortable to act on. But the alternative — running a fast, well-executed search against a brief that has not been properly built — produces appointments that look correct at the time and reveal themselves slowly over the following years.

The most important question a board can ask itself, eighteen months before its next CEO transition, is not who.