Thirteen per cent of companies have to repeat the transition of a new CEO within three years. A study conducted by Russell Reynolds, revealed that these CEO departures carried real financial consequences and risks for both the company and shareholders.
When a CEO transition occurs, it is essential that companies consider both transition and succession planning to mitigate the risks and accelerate value creation. In this blog, we discuss Russell Reynolds' findings on how to establish a transition management process that sets a new CEO and institution up for success.
When is the right time to plan a CEO transition?
It may seem reasonable to start planning for your next CEO when your current CEO signals their intention to leave, however, any CEO succession and departure introduces risks. Therefore, it is necessary for the board to regularly engage with the sitting CEO around long-term succession planning early in their tenure. Thoughtful succession and transition planning can increase a new CEO’s understanding of the company and sets them up for success. This can be implemented in six phases. We will talk through each phase further below.
Phase 1: Planning the transition and thinking about the details
Developing a straw-man transition plan to reflect priority areas will help the new CEO with a smooth and transparent transition. It is crucial for the critical parties in a company - the board, executives and product owners - to sit together and agree on an orderly transfer of roles and responsibilities and also a resolution of the inevitable issues that may arise during the transition.
Phase 2: Documenting and communicating the plan
Change in leadership inevitably makes room for confusion and instability. Therefore, it is important to have clear communication that reaches the entire organisation throughout the transition process. Doing this reduces uncertainty and demonstrates stability and thoughtfulness to senior leaders and other stakeholders.
Phase 3: Building relationships with the board
To succeed, any new CEO must understand and engage with the board as a whole and individually. For internal candidates, this should happen several months prior to their succession. External candidates, however, may not have this lead time to build relationships. Therefore, it is integral that as soon as the announcement is made, that the outgoing CEO begins working with the new CEO, providing guidance and helping them build a productive relationship with the board. The outgoing CEO should also look at coaching opportunities to ensure the incoming CEO is well versed in the norms and expectations.
Phase 4: Sharing knowledge and cultural norms
As part of coaching the new incoming CEO, it is necessary for the outgoing CEO to share knowledge about important organisational relationships and the institution’s cultural attributes. This is will help ensure that they have a deep understanding of the company’s goals and strategy. This knowledge is vital in assisting the incoming CEO in their success at the company.
Phase 5: Learning key stakeholders’ objectives and concerns
Not only should the new CEO connect with the board but they should also engage with the company’s broader leadership group and key stakeholders to understand their perspectives and goals. Having these conversations is a valuable way to learn more about the essential constituents, and also allows the new CEO to listen to and value outside perspectives.
Phase 6: Assessing the transition
Finally, the last element of a successful transition requires an assessment of its progress and identifying any potential problems so that the plan can be iterated on. Iteration is key to ensuring that whenever any roadblocks appear, they are dealt with swiftly to ensure value creation continues.
To summarise, for a successful CEO transition, it is necessary to have a thoughtful transition and succession plan which allows for minimal disruption to the business. This creates value for the organisation and reduces risk. Best of all, this sets the new CEO up for success, allowing them to hit the ground running and create immediate value for the company and shareholders.