Succession Planning: 4 Steps to Select the Next CEO

March 18, 2014. When selecting the next CEO, there are many steps taken to ensure that the right candidate has been chosen including countless hours of meetings and discussions. However, these 4 steps are critical when the life of a business is at stake. Just like planning your estate, it's important to layout the future plans of a business and the person who will lead that business to future success.

Step 1: Get your Board engaged early. Selecting the next CEO needs to involve more than the current CEO and the HR Director. The Board should be involved in identifying the skills and experience needed to lead the Company. This process should be revisited and updated to keep pace with the Board's strategy and the market. By having the Board involved you are more likely to have their support. Often this list will be different than the resume of the current CEO.

Step 2: Assess your internal candidates. Once your criteria is established, you should get a baseline assessment of your internal candidates. I recommend that the board look wide and deep. The entire top team should go through the executive assessment process first–ideally by an outside firm–so that you don’t single out favorites and start a destructive horse race. The next layer of management should also be assessed–or, in very large companies, a pool of high potentials from that next layer down, where a dark-horse candidate can often emerge. Looking at these different layers also exposes the board to its C+2 and maybe even C+3 executives. In some instances this helps boards realize how shallow or deep the talent bench is and provides the impetus to respond accordingly.

Step 3: Conduct a stress test and simulation. As in much of life, practice makes perfect when it comes to executing succession plans. Once the criteria for the next CEO has been developed, it is important that you measure your internal candidates against them across two time frames: a short-term emergency time frame and a more planned succession in the medium or long term.

Here are the kinds of questions you must have answers for: First, is there an emergency candidate who can take the reins for a time if the CEO were to leave tomorrow? This is often the CFO, COO or a board member. Second, whom do we have to invest in today so that he or she will be prepared tomorrow? Third, has the company developed a team strong enough to ease the transition to a new CEO? And finally, is there a seasoned chairman or lead director who is willing to coach and mentor a new CEO?

In some cases, it may become apparent there are no internal candidates about whom the stakeholders are optimistic. Then the task becomes quite different. Now there is obviously real risk to the company, and a plan for recruitment and development needs to quickly be put in place. Boards faced with this dilemma are advised to go out and recruit new bench strength below the CEO level. Bringing in a potential new CEO at a lower level allows the board to view him or her at work for a period of time. Should such an individual prove capable as a successor, his or her tenure in the company reduces the riskiness of the transition.

Step 4: On-board the successor. The most neglected step when it comes to succession planning is preparing for what happens after the successor is named. Making succession a sink-or-swim shock is simply too risky to endure. There is no such thing as a “ready now” candidate. Anyone named as a successor has learning to do and mistakes to recover from. Part of the succession-planning process must be to take advantage of the time between the announcement and the acceptance of the top job so that the leadership can address as many needs as possible. Crucial support must be provided–a good team, wise and accessible mentors, executive coaching and a feedback-rich environment–to create a setting in which the new CEO can be the most effective.

Boards can–and really must–play an important role in succession planning. Directors must be aggressive and unwavering in their efforts to make the process as real as possible. Honest external evaluation of current talent and a system to develop a rich talent pipeline are just two of the areas where diligent board involvement can make a big difference. In this effort, directors have to remember that the search for a “ready now” candidate is a fool’s errand.

Similarly, what is most critical is creating and continually refocusing succession on the moving target of the knowledge, skills and abilities the next CEO will need in order to effectively lead. Finally, directors need to design their succession planning not just to choose the new executive but also to provide support as he or she finds his or her legs in the new role.

For more information regarding business succession planning, or selecting your next CEO, contact the Goosmann Law Firm at info@goosmannlaw.com or call 712-226-4000.