Ram Charan

<article-ideainbrief class="article-ideainbrief">
 <h4 class="ideainbrief-title">The Idea in Brief</h4>
 <div class="ideainbrief-contents">
  <p>The CEO succession process is broken. Too many companies’ succession pipelines are bone dry. Even among firms that do have succession plans, most aren’t happy with them. Thanks to poor succession planning, CEO tenure is shrinking: Two out of every five new CEOs fail in their first 18 months.</p>
  <p>How to find a CEO who’ll serve your company long <em>and</em> well? Develop a deep pool of internal candidates—and keep it well stocked through a solid leadership development program. Ensure that the board devotes sufficient time to CEO succession—identifying promising candidates early in their careers and getting to know them personally. And if directors are considering outside candidates, suggest that they—not recruiters—drive the search process by defining specific requirements and vetting candidates.</p>
  <p>As perennial performance powerhouses such as GE and Colgate-Palmolive demonstrate, nothing affects a company’s future more than CEO succession. Start investing time and energy in your firm’s succession planning today: The call for a new leader could come as soon as tomorrow.</p>
  <p>The Idea in Practice</p>
  <p>How to succeed at succession? Apply these potent practices:</p>
  <h2>Bolster Internal Leadership Development</h2>
  <p>In CEO succession, it takes a ton of ore to produce an ounce of gold. Very few of your company’s leaders will ever be qualified to run the firm. Spot promising candidates early—then nurture them with the right on-the-job experiences. Move candidates through positions requiring responsibility for steadily larger, more complex P&amp;L centers. If your company’s not configured to provide such opportunities, create jobs—large projects, small internal organizations—that exercise a candidate’s P&amp;L muscle. <span style="idea-in-practice-example"><span style="idea-in-practice-example-header">Example:&nbsp;</span> </span></p>
  <p>A $10 billion company in a highly capital-intensive and unionized industry has targeted the head of its smallest division as the next CEO. Though brilliant and articulate, the candidate has no experience running big businesses in general or this type of business in particular. The board is considering creating a deputy position in its largest division for him and making the current division head his coach—granting the coach a bonus if he ensures his successor’s success. </p>
  <h2>Insist on Board Involvement</h2>
  <p>To help your company find a strong CEO successor, your board must spend less time monitoring financial performance and more time planning for CEO succession and managing searches. The board should dedicate at minimum two sessions a year to hashing over at least five CEO candidates—devoting at least 15% of board time to succession.</p>
  <p>Directors should also personally get to know rising stars—inviting them to board meetings and dinners, talking with them informally, and observing them in the natural habitats of their business operations.</p>
  <h2>Put Directors—not Recruiters—in Charge</h2>
  <p>Without effective direction from the board, recruiters approach searches looking for generic qualities such as character, vision, and relationship, team-building, and change-management abilities. To guide recruiters, directors must:</p>
  <ul>
   <li><strong>Articulate three or four non-negotiable aspects of talent, know-how, and experience</strong> pertaining to your company’s dominant needs for the next several years <em>and</em> to future growth. One company’s criteria included experience in segmenting markets according to customers’ needs, and a track record of building strong executive teams.</li>
  </ul>
  <ul>
   <li><strong>Conduct due diligence on outside candidates</strong>—seeking reliable external sources, demanding candor from them, and rooting out fatal character flaws and skills shortages. Require recruiters to provide detailed explanations of how each candidate fulfills the company’s criteria. A 10-page report on each is reasonable.</li>
  </ul>
 </div>
</article-ideainbrief><p>We talk about leadership as though leaders—like Tolstoy’s happy families—are all alike. But CEO leadership should be a subject apart because it is unique in scope and substance and of incomparable importance. CEOs’ performance determines the fates of corporations, which collectively influence whole economies. Our standard of living depends upon excellence at the very top.</p>

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<p><span class="reprint">Reprint: R0502C<br />
</span></p>
<p>The CEO succession process is broken. Many companies have no meaningful succession plans, and few of the ones that do are happy with them. CEO tenure is shrinking; in fact, two out of five CEOs fail in their first 18 months.</p>
<p>It isn&#8217;t just that more CEOs are being replaced; it&#8217;s that they&#8217;re being replaced <em>badly</em>. The problems extend to every aspect of CEO succession: internal development programs, board supervision, and outside recruitment.</p>
<p>While many organizations do a decent job of nurturing middle managers, few have set up the comprehensive programs needed to find the half-dozen true CEO candidates out of the thousands of leaders in their midst. Even more damaging is the failure of boards to devote enough attention to succession. Search committee members often have no experience hiring CEOs; lacking guidance, they supply either the narrowest or the most general of requirements and then fail to vet either the candidates or the recruiters.</p>
<p>The result is that too often new CEOs are plucked from the well-worn Rolodexes of a remarkably small number of recruiters. These candidates may be strong in charisma but may lack critical skills or otherwise be a bad fit with the company. The resulting high turnover is particularly damaging, since outside CEOs often bring in their own teams, can cause the company to lose focus, and are especially costly to be rid of.</p>
<p>Drawing on over 35 years of experience with CEO succession, the author explains how companies can create a deep pool of internal candidates, how boards can consistently align strategy and leadership development, and how directors can get their money&#8217;s worth from recruiters. Choosing a CEO should be not one decision but an amalgam of thousands of decisions made by many people every day over years.</p>

Ending the CEO Succession Crisis

Reprint: R0502C The CEO succession process is broken. Many companies have no meaningful succession plans, and few of the ones that do are happy with them. CEO tenure is shrinking; in fact, two out of five CEOs fail in their first 18 months. It isn’t just that more CEOs are being replaced; it’s that they’re being replaced badly . The problems extend to every aspect of CEO succession: internal development programs, board supervision, and outside recruitment. While many organizations do a decent job of nurturing middle managers, few have set up the comprehensive programs needed to find the half-dozen true CEO candidates out of the thousands of leaders in their midst. Even more damaging is the failure of boards to devote enough attention to succession. Search committee members often have no experience hiring CEOs; lacking guidance, they supply either the narrowest or the most general of requirements and then fail to vet either the candidates or the recruiters. The result is that too often new CEOs are plucked from the well-worn Rolodexes of a remarkably small number of recruiters. These candidates may be strong in charisma but may lack critical skills or otherwise be a bad fit with the company. The resulting high turnover is particularly damaging, since outside CEOs often bring in their own teams, can cause the company to lose focus, and are especially costly to be rid of. Drawing on over 35 years of experience with CEO succession, the author explains how companies can create a deep pool of internal candidates, how boards can consistently align strategy and leadership development, and how directors can get their money’s worth from recruiters. Choosing a CEO should be not one decision but an amalgam of thousands of decisions made by many people every day over years.

Ending the CEO Succession Crisis

Summary.

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