Can Your Organization Name a CEO Tomorrow?

By: Deanna Hartley

Former Hewlett-Packard Co. CEO Mark Hurd made headlines when he resigned over a sexual harassment allegation. Also making headlines is the fact that HP has no clear successor for Hurd, as reported by The Wall Street Journal.

The tech conglomerate isn’t alone. A recent survey of 140 North American CEOs and board directors – conducted by Heidrick & Struggles and Stanford University’s Rock Center for Corporate Governance – revealed that 51 percent of organizations could not name a CEO immediately if the need arose, and 39 percent of respondents had zero internal candidates who could step in if the CEO were to leave or become incapacitated.

One of the key findings that emerged from the research is about the difference between compliance-based succession planning versus operational succession planning.

“There’s a false sense of security with a lot of directors and CEOs around succession planning in the sense that they ‘do succession planning;’ they talk about it; and they can point to a succession planning binder and there’s names in the boxes, but if there is a catastrophic event or somebody leaves the company and they have to name somebody, the plan actually isn’t operational because – in most instances – [there’s] not somebody ready now,” said Stephen Miles, vice chairman of Heidrick & Struggles.

“[The] Sarbanes-Oxley [Act] has been good in the sense that succession planning is now in our vernacular, and people talk about it and people do it, but think the next phase of succession planning is to go from sort of compliance-based succession planning to truly operationalizing the succession plan so you can name people,” he said.

The notion of “ready now” is actually misleading because nobody is fully ready for a job, Miles explained. Not even CEOs are ready for the job once they are named; they grow into their roles.

“We need to first strike the notion of ‘ready now’ and then look at the decision around CEO succession planning as a risk management decision. If we do that, then we can look at the top team and say, ‘Look, is this a very seasoned, veteran team, and, if so, can we put in a higher-risk candidate in the CEO role? Or is this a very young, immature team, and therefore we have to overhire in the CEO role because we don’t have the degree of freedom?” he said.

It’s also important for organizations to develop candidate viability beyond the boardroom, Miles explained. For instance, board members can have dinners or one-on-ones with candidates, or they could go to a candidate’s business or function and watch the person in action. These kinds of opportunities offer board members richer perspectives with which to make decisions when the time comes.

“The best-practice companies go above and beyond in terms of getting full board exposure to their candidates, not just the perfunctory PowerPoint presentations in front of the board, but board members going to their businesses or functions,” he said. “If they do a town hall meeting, if they do a strategic off-site, the board member can attend, make a few remarks and then be part of the audience. They can see the executive in action in their sort of home ecosystem, if you will, as opposed to this contrived environment inside a boardroom.”

The apparent lack of succession planning in many organizations today could have serious business consequences.

“There’s a business continuity question because if you do have an event where you have to do a succession plan, if you don’t take this seriously and don’t have an operational succession plan, but simply do compliance-based planning and you can’t name somebody, there’s this interruption in the business for some usually prolonged period of time – six-plus months – where everything is kind of on hold,” he said.

About the Author:

Deanna Hartley is an associate editor for Talent Management magazine.

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