Making CEOs Most Likely to Succeed

HR can lay the groundwork for a smooth transition.

By Dec 1, 2015
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Selecting a new CEO can be a rewarding process, the culmination of years of thorough planning and a diligent evaluation of internal and external candidates. Or it can be like making sausages: hard to watch, particularly for a chief human resources officer accustomed to rigorous hiring standards.

Just ask Marcia J. Avedon, who has been involved with several successful CEO transitions and has studied the process across the U.S. She often sees a disconnect between how CEO selection should work and the way it plays out at many organizations.

“The CHRO is really integral to that process,” says Avedon, senior vice president for HR, communications and corporate affairs in Davidson, N.C., for Ingersoll Rand, a global industrial manufacturer. But in many businesses, the CHRO is not fully involved in the most crucial steps. Sometimes, board members’ egos get in the way of their objectivity, or they might put undue emphasis on whether someone looks the part. They may also be in too much of a hurry to properly vet the candidates.

“Don’t fall in love too quickly,” Avedon counsels those involved in choosing a CEO. “It requires appropriate courting and due diligence.”

Indeed, the selection of a new chief executive is arguably the most important decision an organization can make. Yet nationwide statistics show that the process could be improved. Two out of every 5 CEOs at large organizations fail within 18 months, according to the Center for Creative Leadership. CEO churn can lead to poor financial results and even a failed company. HR leaders say this makes it all the more critical to guide CEO transitions with sound HR practices.

Moreover, in today’s competitive job market, it’s imperative to find a leader who can not only drive bottom-line business results but also motivate employees and make them want to stay at your organization. “Companies are more and more dependent on people skills,” notes Xenia Duffy Obel, head of HR, communications and administration at construction firm Züblin in Aarhus, Denmark, who has also headed HR operations for GE and other firms in Europe.

For HR to help organizations find the right top executive, CHROs must demonstrate their business knowledge and build visibility and credibility with the board long before a CEO transition is imminent. “It’s not something you’re likely to be able to pull off at the last minute,” says Dave Pace, president of Carrabba’s Italian Grill in Tampa, Fla., and a former top HR officer for Bloomin’ Brands and Starbucks.

Among the most important roles that the CHRO can play—and one of the most difficult—is to ensure that HR, the board and the outgoing CEO have the same expectations about who does what during the transition process. “The HR leader has to be in synch with the point person for the board,” Pace says. Without strong alignment of all parties, the HR leader and the CEO may be working at cross purposes with the board.

“The process should be orchestrated by HR to ensure continuity, stability and productivity,” says Skip Spriggs, executive vice president and CHRO of Charlotte, N.C.-based financial services firm TIAA-CREF.

How Boards Can Get to Know Potential CEOs

It is important for board members to observe the behavior of potential internal CEO candidates, according to a 2013 report on the role of CHROs in CEO succession from the University of South Carolina’s Darla Moore School of Business. The report outlines ways HR can help possible successors gain this exposure:

  • Have them attend board meetings. Avoid the temptation to bring in several candidates at once, however. Inviting only one individual per meeting allows the board to learn more about that person.
  • Schedule one-on-one meetings. Talking over a meal can provide opportunities for board members to privately interact with a candidate.
  • Plan business visits. Some board members make periodic visits to various areas of the business. This allows internal candidates to describe their role in detail.
  • Provide additional opportunities. Arrange for board members to accompany interviewees on customer visits, ask potential successors to serve on board committees, or assign them projects that provide additional visibility with the board.

The CHRO’s role is to influence in a way that is candid and accurate and in the best interests of the company and all the stakeholders, Avedon says. Over time, providing such high-level consultation bestows HR professionals with greater authority within the business and demonstrates their value as subject-matter experts.

Still, it’s important to remember that the board “owns” the CEO selection process, so ultimately it will dictate how involved HR is—or isn’t. If the board wants that involvement, they'll give the CHRO a role, Pace says.

The Right CHRO for the Job

CHROs need a variety of skills and experiences to effectively partner with the board and the CEO. Understanding the business—its levers of success—is a necessity, and experience in different functions of the enterprise is a plus.

Transparency and discretion are also critical. “You have to be a trusted advisor to the CEO and the board,” says Lorraine Stomski, a partner and North American leadership consulting practice leader for Aon Hewitt in the New York City area.

And, of course, HR must work to keep all parties focused on the task at hand. “You need to be able to facilitate the process, but don’t come off as overbearing,” says Patrick M. Wright, a management professor at the University of South Carolina.

Last but not least, the CHRO must help the departing CEO with the emotional aspects of the transition, acting almost as a psychologist. Even when the CEO is leaving voluntarily, he or she might find it difficult to let go. That individual’s desire to maintain control can lead him or her to try to dictate who the next CEO will be. The message from the CHRO to the outgoing CEO should be “It’s time to reinvent yourself,” Wright says.

Not every HR leader is ready—or able—to take on the task of guiding the CEO succession process. In some cases, CHROs struggle to demonstrate how their expertise can improve the outcome. In others, communications can be hampered by the different backgrounds of the board and the CHRO. “Board members have a problem talking about skills and competencies and assessments,” says Scott Saslow, founder and CEO of The Institute of Executive Development in Palo Alto, Calif. By the same token, HR might have a hard time persuading board members why those factors should weigh heavily in their deliberations.

“You’ve got to challenge the thinking of the board’s succession committee,” Pace says. At the same time, the CHRO must be fully conversant in the business of the organization in order for his or her input to be taken seriously.

Having strong interpersonal skills can make a big difference. HR must impress on the board the importance of the succession process, perhaps even insisting that the board make an objective assessment of candidates using tools such as cognitive ability testing and personality testing. But keep in mind it’s not HR’s job to make the final selection—only to advise those who do. “It’s never about influencing the board toward a candidate,” Wright says.

One way the CHRO can build trust with the board is by getting to know its members before any succession planning is on the horizon. Saslow advises CHRO’s to take it upon themselves to include building rapport with the board in their development plans. “Find excuses to call them,” he says.

Planning for Change

A 2013 report on the role of CHROs in CEO succession released by the University of South Carolina’s Darla Moore School of Business found that, while companies generally recognize the importance of a reliable succession plan for senior executives, most do not believe that their company’s plan is adequate or that it will produce the best possible successor.

The report recommends that a succession plan include:

  • A shared vision of the direction of the company.
  • A skills and experience profile for the next CEO.
  • Names of top internal talent and a growth plan for each individual.
  • A list of external executives to serve as a benchmark for desired traits.
  • Opportunities for the board to mentor promising senior executives.

But even the most thorough plans will only be useful if they are updated frequently and actually used rather than left untouched on a shelf or server. Whenever senior management meets, “make sure that [the topic of] succession is front and center,” says Jeffrey S. Shuman, senior vice president and CHRO of Quest Diagnostics in Madison, N.J.

Many organizations consider three time frames for a potential CEO change: Who could step in today in an emergency? Who might be ready in one to five years? And who might be a good fit in five or more years?

Ensuring Effective C-Level Succession

HR departments have much work to do in preparing top executives. A 2014 report by The Institute of Executive Development and The Rock Center for Corporate Governance at Stanford University suggests taking the following steps, which many of the companies they surveyed failed to do:

  • Know who is next in line to fill senior executive positions.
  • Have an actionable process for selecting senior executives.
  • Plan for succession with the goal of finding the best people rather than simply avoiding risk.
  • Define roles and ensure that people are adhering to those definitions.
  • Connect your succession plans with talent development programs.

The first question is frequently overlooked, sometimes with severe repercussions. In one tragic example Shuman cites, the new CEO of a company and several potential successors all died in a fire while staying at the same hotel. The company had a succession plan, but it did not include any scenarios for sufficiently addressing such a disaster.

HR should lead the process of translating the organization’s needs into competencies and developing a CEO job description. “This is where HR should be adding a lot of value,” Saslow says.

The board, by contrast, lacks the necessary experience and will often base the job description on the defects of the previous CEO instead of taking a future perspective, according to Obel.

One way to identify the skills you want in a CEO is for the CHRO to work with the executive team and others to identify the desired future direction of the company. That process will help suggest which competencies the new CEO should have.

Then it is usually, but not always, up to the CHRO to assess how well candidates’ qualifications match the elements of the job description. “The HR organization is generally best equipped to do talent assessment,” Spriggs says. “We can do it in partnership with the board.”

However, if the board needs convincing, it may be helpful for HR to share its hiring success stories from other parts of the organization, Shuman adds.

Grooming the Successor

Even for chief executives promoted from within, it’s best to plan for a lengthy onboarding process to set up the chosen candidate for success. And HR should oversee the transition.

At a minimum, experts suggest that HR consider which aspects of the job should be covered in the first six months and then break those items down by month. “Be actively involved,” Spriggs advises. “Help the new CEO meet with stakeholders, engage with employees and reach out to key customers.”

The 5 Phases of Successful CEO Transition

A good CEO transition plan spans a year and contains five phases:

  1. Intensive knowledge sharing.
  2. Communicating with stakeholders.
  3. Drafting a written transition plan.
  4. Sharing the transition plan.
  5. Strengthening relationships with the board.

Sources: Russell Reynolds Associates and Jack O'Kelley of Katzenbach Partners.

When an internal candidate is selected, sometimes that person needs to be reminded that his or her role has changed. Wright observes that the CHRO might need to say, “You’re no longer the COO. Now you’re in charge of strategy. Let the operators do the operating.”

Communicating with internal candidates who aren’t selected for the job can be trickier. While you don’t want to sugarcoat the bad news, it may be helpful to focus on the value the person brings to the organization. A conversation can start with “We don’t see you as a potential CEO, but we don’t want to lose you.”

Before sharing the decision, though, discuss with others involved in the selection process how you might retain these individuals in their current positions or elsewhere. That way, you’ll be ready to suggest alternative job paths or additional compensation if appropriate.

Ultimately, if the CHRO acts with transparency and honesty, people will listen. “You’ve been giving people some very candid feedback for months or years before a decision is made,” Shuman says. That should help them assess their chances of being offered the CEO job from the get-go.

Of course, the CHRO’s work doesn’t end when the board makes its decision. “Your job is to make the new CEO successful,” says Wright.

Steve Bates is a freelance writer in the Washington, D.C., area and a former writer and editor for SHRM.

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