The CHRO's Guide to CEO Succession Planning

Although CEO succession planning is one of the most important tasks of corporate boards, 37% of directors surveyed by the National Association of Corporate Directors in late 2022 said that their board did not allocate enough time to the topic over the previous 12 months. In that same survey, two-thirds of directors identified CEO succession planning as a “very important” or “important” area of improvement for their board over the next year.

A good CHRO will know what a best-in-class succession process looks like, says Noah Shamosh, a partner at Spencer Stuart. “The board will see them as a quality-control agent for the process.”

Succession planning can be a sensitive topic, says Stephen Patscot, another partner at Spencer Stuart. And boards delay the process for many reasons. For example, a third of directors surveyed by PwC said that the biggest obstacle preventing them from starting earlier is that their current CEO is performing as expected. But succession planning should start early and be a continuous process, regardless of the CEO’s performance. The role of the CHRO, says Patscot, is to facilitate the process and make it a routine part of the organization’s talent planning.

For insights on how a CHRO can provide real value to the board during succession planning, we spoke with Patscot, who worked in HR at General Electric for over two decades and now leads Spencer Stuart’s North American HR practice;  Coco Brown, the founder and CEO of the Athena Alliance, an executive education company, and a board member at ArcherPoint; Shamosh, a consultant at Spencer Stuart and a member of the firm’s leadership advisory services, and Michael Useem, a professor of management at Wharton. Here is their advice:

1. Make succession planning a regular part of your company’s talent agenda

The best way to prevent CEO succession planning from becoming an awkward affair is to make it routine. When a company hires a new CEO, they should start work the following quarter on finding a successor, says Patscot. The CHRO can broach the topic with the current CEO by framing it as good governance and an important aspect of the organization’s talent planning, he adds. Starting this process early will prevent a rushed, disorganized succession down the road.

When a CEO has been in their role for a while, it can be tricky for a board director to ask them when they plan on stepping down—they don’t want to give the CEO the impression that they’re getting pushed out. Board directors see this as an important role for the CHRO, according to a series of interviews of board directors by the Center for Executive Succession at the University of South Carolina. Ask your CEO about their timeline in your regular conversations with them about succession planning and developing internal candidates.

What to say: Brown, the CEO of the Athena Alliance, says one helpful approach, particularly if you’re dealing with someone who has been CEO for a long time, is for the CHRO to run a thought exercise with the CEO: “Let's just even imagine the possibility that we are going to need a new CEO. ... If we no longer had you, what would we need to replace you with?”

Patscot says that when he talks to current CEOs about finding their successor, he likes to ask what they think their successor needs to be better at than them. “The greatest gift a CEO can give to the board is a replacement map.” Your conversations with the CEO should guide them through that process.

2. Help develop specifications for the next CEO

Patscot explains that when it comes to identifying the qualities and experience a board is looking for in the company’s next CEO, the best practice is to start by having one-on-one conversations with each individual director and the current CEO. “And that could be the CHRO doing that, or it could be the CHRO doing that in concert with [an outside] search firm.” Your role in these one-on-one conversations is to facilitate a dialogue about what type of CEO the company needs for the future. During this process, a board director may ask for your opinion, says Patscot, “and I think it's at that point where you can contribute as a participant if asked.”

If the current CEO is performing well, it can be easy for directors to just look for a carbon copy. Directors interviewed by the Center for Executive Succession said they see a role for the CHRO in encouraging them to think about what they need in a CEO for the future. Patscot adds that during those conversations, the CHRO should help directors weigh trade offs to prevent the next CEO wishlist from becoming a “purple unicorn,” a profile that’s so specific that it’s very hard to find. Separating out the ‘must-haves’ from the ‘nice-to-haves’ can also help diversify the pool of candidates you're considering.

3. Develop internal candidates and update the board on their progress

Some boards, like Starbucks' board, decide to look outside the company for the next CEO. But many still rely on internal candidates. In 2022, for example, 82% of CEO appointments in the S&P 500 were internal candidates. The most important role for the CHRO in succession planning is arguably developing internal talent so that they’re ready to fill the top job.

Anyone who’s in line for the CEO role in the next three to five years should be reviewed and discussed by the full board, says Volvo Group board director Martha Brooks. By the time those candidates are discussed, you should have already identified the key gaps in their skills or experience that would prevent them from being ready today. For example, one candidate may not have enough experience dealing with Wall Street, while another might need to improve their leadership skills. But the focus should be on two to three key development areas, “not 10 things,” says Brooks.

As the CHRO, your task is to build a development infrastructure for those candidates such that by the time they’re seriously being considered for the CEO role, “they’ve seen it all,” says Useem. At board meetings, be ready to answer questions about what those candidates are working on and your assessment of their progress. You should also be giving the board exposure to those candidates by inviting them to events like board dinners, says Patscot.

Author: Jacob Clemente.  © 2024. This article is reprinted with permission by Charter Works Inc. All rights reserved.