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Recent news about Starbucks that Kevin Johnson will step down as CEO April 4, and founder Howard Schultz will again lead the company bringing the critical process of CEO succession planning back into focus.
Choosing the right leader for an organization is arguably the most important job of the board of directors. Mellody Hobson, independent president of StarbucksThe board of directors said directors became aware of Johnson’s desire to step down a year ago and that a new chief executive would take his place in the fall.
Even the most innovative strategies or the best funding is not enough without the right leaders. Now, post-Covid-19 changes along with increased stakeholder activism are reshaping legacy planning. The ability to manage rapid digital transformation, flexible and remote schedules, and the overall changing nature of the work mean that boards are having to rethink the skills they are employing. Looking for a top leader.
Directors also need to replace CEOs more often during their own board tenure. In 2020, 56 S&P 500 CEOs resign, up 30% from the previous decade, according to data from executive search firm Spencer Stuart. Of those who quit their jobs in 2020, 20% did so under pressure, up from 13% a year earlier.
Too often, however, boards are unprepared before a CEO retires, resigns, or is forced to leave. “If you believe that a board’s primary responsibility is to come up with the right leadership and rightly so, then a company should never be surprised when it has to replace a CEO,” said Maria Moats, leader director of PwC’s Managed Insights, said. Center. “Always have an emergency plan.”
One of the reasons succession planning often becomes such a painful process, she says, is simply human nature: it can be an uncomfortable conversation.
Talking to a newly installed CEO about the process of replacing him or her is not something most board members are happy about in the job. A PwC survey found that the biggest reason directors have a hard time making succession planning more timely and effective is because the current CEO is performing as expected and therefore has a lot to offer. less urgency to focus on the process.
Competitive priorities
Another barrier to better succession planning is often board priorities. Stephen Schwanhausser, global managing partner at Heidrick & Struggles, said: “When a company is just starting its tenure as CEO, there are a number of competing business initiatives that are important to the board.
“If a board is not prescriptive about succession planning early in the process, the harder it is to have these conversations as close to the time of change,” he said. “Boards must plan far enough in advance so that they can execute it thoughtfully and clearly while managing all other priorities in the business.”
If you believe that the main responsibility of the board is to put in place the right leadership, then a company will never be surprised when it has to replace an executive.
Maria Moats, leader, PwC Governance Insights Center
Moats says the easiest way to prioritize succession planning is to have the entire board review its plan at least once a year. All process goals, the details of the candidate development process, and the progress for each step the board will take should all be part of the planning process.
Join CHRO
This is also where the HR director gets involved. “If the board owns the CEO succession planning process, then the CHRO owns the talent management role in the company,” Moats said. Having CHRO involvement allows the board to have the opportunity to consider candidates one level below the CEO. If an internal candidate is selected as the new CEO – as is often the case, Moats said – the CHRO will understand the impact on other senior executives and what it will take to retain top talent. . In a highly competitive job market, this is particularly important, adds Moats.
ONE Recent PwC survey shows that recruiting and retaining talent across the organization (not just the C-suite) is a top priority for 88% of executives surveyed, raising the bar for digital transformation initiatives and develop new products.
Cynthia Stoldt, CEO of Aherne Executive Search, says she’s seeing that shift in preference in her company’s CEO searches. “Because employee retention is so important these days, people are paying close attention to how the transition is made,” she said.
She cited a recent CEO search she did for a consumer company, for example. The organization is experiencing double-digit growth and was able to avoid layoffs throughout the pandemic and beyond. “The staff there feel very safe and motivated,” says Stoldt.
For personal reasons, the CEO needed to step down and Stoldt’s company was put in charge of finding a replacement for him. “This leader is very confident and full of energy and we need to replace him with someone who can instill that confidence in a way that the company won’t lose any top talent,” she said. their other. Stoldt says that finding that “style-appropriate” style was probably something she didn’t prioritize years ago.
“Searches are currently being carried out with the aim of retaining top talent,” she said.
As CEO tenure shrinks and stakeholders demand companies represent the values they hold dear, boards must find the type of CEO who can best reflect these changes.
The next generation of employees is demanding very different things from their leaders, says Schwanhausser. “That puts a different kind of pressure on the CEO role and requires boards to rethink the type of leader they will choose.”
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