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CEO succession is a high-stakes event that happens on average every six years. Which means most organizations will go through it regularly – but not regularly enough to get good at it. If they were better at it, they probably wouldn’t have to do it as often, and excellent communication can be a big difference-maker.
Why? Because the thoughtfulness and energy that goes into developing a successor isn’t matched when it comes time to nurture the transition. A huge success factor is how well the new CEO builds relationships and understanding early on, and communication is all about fostering both. According to Russell Reynolds, writing and sharing a transition plan and stakeholder communication are three of the five elements of a successful succession. I’ve seen the surrounding communication done well, giving the successor a great head-start, and I’ve seen it botched, tying an anchor around the newcomer’s neck.
There are three phases to communicating a leadership transition. While the overall goal is to help lay the foundation for a successful succession, each phase has a more specific objective. The three phases are:
I: Decision through announcement
II: Announcement through implementation
III: The first months of the new CEO’s tenure
I’ll describe Phase I here, and the others in my next two posts.
In Phase I (typically about four months), the objective is to create the conditions for a successful announcement. While the timing of the hand-off and the identity of the next CEO must remain a surprise to all but a very few insiders, you want those who are most important to the success of the company to feel sufficiently familiar with the successor to welcome or accept the announcement – or, at the very least, to give the benefit of any doubt.
The most critical tasks of Phase I are: for the successor to begin building new relationships with key external stakeholders, with the outgoing CEO’s help where appropriate (i.e., where he can lend added credibility because of his own); to increase the successor’s visibility and stature within the organization; and to begin redefining internal relationships that will change in important ways.
It is also critical to severely restrict and manage the circle of insiders who know the future plan in the period prior to its announcement. Not only do many companies face legal and regulatory ramifications, but loss of control over the timing, content and sequencing of the announcement is likely to cause misinformation, force a premature announcement and create avoidable problems that complicate the transition.
In general, these are the activities to be undertaken prior to the announcement of the succession plan:
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Draft a detailed, step-by-step communication plan for the announcement as well as necessary materials.
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Create a contingency plan and draft a standby statement.
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Create a matrix listing people the successor should meet or get to know better.
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Identify or create opportunities for the successor to share his or her views and insights, to demonstrate knowledge, experience, character and intellect.
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Identify and resolve any remaining open issues related to the transition (e.g., reporting structure and executive responsibilities).
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Remind informed insiders of the risk of premature, selective disclosure.
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Provide any training to help the successor be fully operational on day one (e.g., media or investor relations training)
Next post: Phase II – announcement through implementation.
As a CEO, I like measurement and analysis. They help me understand what’s happening in our business and inform good decisions. I’ve also learned that a lot of what matters is tough to measure. For example, there is a delicate balance between the share of mind we give to client service and to our own operations that doesn’t show up in time sheets. We obviously have to focus on clients and pay attention to how we do things, but too much attention on the latter invariably hurts the firm. How much is too much? I can’t count it, but I can feel it.
Our profession is constantly challenged to provide measurement and demonstrate ROI, and we should do both. But I’ve also seen that demand carried to an extreme, and I worry about what I think of as “standardized test syndrome.” Just as the quality of education can suffer when schools teach for better test results, the impact of communications can be lessened when the tactics emphasized are determined less by an underlying strategy and more by what’s easiest to measure.
Babson business professor Tom Davenport apparently shares the broad concern. In a recent article on the critical but overlooked value of judgment in managing a business, he wrote, “Good judgment is another important virtue — if not the most important one (as Aristotle thought). Like love, it so far defies measurement. But we ignore it as a critical factor in organizational life at our peril.”
He also said, “So much of life cannot be measured yet is still lived and enjoyed. Is there a way to calculate the ROI on raising children? If there is, I for one would like to know it. (Yes, I know all about the human capital equations of economists, but I’m talking about real life here.) What about the satisfaction of serving one’s community or nation or planet altruistically? We can count Google hits, but they are hardly a proxy for reputation. The number of friends one has on a social network is no measure of the value of friends.”
I’m not saying measurement doesn’t matter – it’s critical and we, as a firm, have made a significant investment in our ability to measure the direct impact of what we do on our clients’ performance. I’m suggesting we not forget what every parent among us already knows: that there are things we can’t measure that sometimes matter most.
A friend who serves on the boards of a few large public companies recently told me about a frustrating boardroom debate in which one of his colleagues said “if we approve this, it may be good for the company but you can bet ISS will tell our shareholders to withhold votes.”
Shortly after this conversation I read an article describing “Six Ways to Tell if You Have a Bad Board.” According to Roger Martin, dean of the University of Toronto’s B-school, here are the tell-tale signs:
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They complain about how hard Sarbanes-Oxley has made it to be a director. (Hasn’t it gotten harder for auditors, regulators, analysts and investors?)
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They complain about how the fees for being a director aren’t high enough to compensate for the onerous work involved.
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They’re paid in the top third of peer boards.
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They’re excessively proud of being on the board. (Prestige isn’t an incentive for effectiveness.)
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They’re enamored of the enjoyable social atmosphere of the board. (Ditto.)
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They’re enthusiastic about the personal growth opportunities the board provides. (Ditto again.)
My friend told me his story in the context of his growing concern about weak directors damaging boards. Roger Martin’s signs of a bad board are actually signs that it has bad directors.
Each board has its own culture which, like any organization’s, is key to its effectiveness. In some cases that culture is clearly breaking down. An attitude like that of the director my friend quoted or one who fits Martin’s list is corrosive to a culture – and also doesn’t serve the interests of the company, its shareholders or anyone else. Kirkland and Ellis Partner James Sprayregen believes that board culture is a driver of company performance. According to him, bad board culture can lead to a long process of decline caused by non-feasance (as opposed to malfeasance) or by failure to address problems because the corrective action required is unpleasant.
The ramp up in regulations directors have faced in recent years can’t solve the cultural problem (which it exacerbated) because you can’t regulate culture. That’s the work of the chairman and the directors themselves.
