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Recent news from Starbucks that Kevin Johnson resigned as CEO on April 4 and founder Howard Schultz will lead the company again is once again in the limelight of an important process of CEO succession planning. ..
Choosing the right leader for your organization is arguably the most important task of the board. Melody Hobson, independent chairman of the Starbucks board, said the board knew Johnson’s desire to resign a year ago and knew that a new CEO would be appointed by the fall.
Even the most innovative strategies and the best finances are not enough without the right leaders in command. Currently, the changes associated with the Covid-19 pandemic combined with the increased activity of stakeholders are restructuring the successor development plan. The ability to manage rapid digital transformation, flexible and remote scheduling, and the nature of the overall changing work means that the board needs to rethink the skills that top leaders are looking for.
Directors also need to change CEOs more frequently during their term of office on the board. According to data from executive search firm Spencer Stuart, 56 S & P 500 CEOs resigned in 2020, an increase of 30% over the last decade. Of those who resigned in 2020, 20% resigned under pressure, up from 13% in the previous year.
However, when a CEO retires, resigns, or is forced to resign, the board is often caught unprepared. Maria Moats, Leader of Governance Insights at PwC, said: center. “You need to have an emergency plan at all times.”
She says one of the reasons that successor development often turns out to be such a painful process is the simple human nature. It can be an unpleasant conversation.
Talking to the newly established CEO about the process of change is not something most board members are happy about the job. According to a PwC study, the biggest reason directors are struggling with more timely and effective succession plans is the urgency to focus on the process as current CEOs are performing as expected. Because there are few.
Conflicting priorities
Another barrier that hinders better successor development plans is often board priorities. Stephen Schwannhauser, Global Managing Partner of Heidrick & Struggles, said there are some competing business initiatives that are important to the board when a company is in the early stages of its CEO’s term.
“If the board isn’t normative about successor development plans early in the process, it’s difficult to bring these conversations closer to the point of change,” he says. “The board needs to plan well in advance so that it can be thoughtfully and clearly implemented while managing all other priorities in the business.”
If you believe that the main responsibility of the board is to assign the right leaders, then the company will never be surprised when the CEO has to be replaced.
Maria Moats, Leader of PwC’s Governance Insights Center
Moats states that the easiest way to prioritize a successor development plan is for the entire board to review the plan at least once a year. The process goals, details of the candidate development process, and the timeline for each step taken by the board must all be part of the planning process.
Involve the CHRO
This is where the Chief Human Resources Officer comes in. “If the board owns the CEO’s successor development process, CHRO has the role of talent management for the company,” says Moats. Involving CHRO gives the board the opportunity to consider candidates one level below the CEO. According to Moats, when an in-house candidate is selected as the new CEO, CHRO understands the implications for other senior executives and what it takes to retain talent. This is especially important in the highly competitive employment market, Moats adds.
According to a recent PwC survey, recruiting and retaining talent across the organization (not just the C suite) is a top priority for 88% of the directors surveyed, ahead of digital transformation initiatives and new product development. increase.
Cynthia Stoldt, CEO of Aherne Executive Search, says he is witnessing a changing priority in the company’s CEO search. “Currently, employee retention is so important that everyone pays close attention to how the transition is performed,” she says.
She cites, for example, the recent CEO search she did for consumer businesses. The organization has achieved double-digit growth and was able to avoid the entire pandemic and subsequent layoffs. “The employees there felt very safe and motivated,” says Stoldt.
For personal reasons, the CEO had to resign and Stoldt’s company was responsible for finding his replacement. “This leader was very confident and energetic. We needed to replace him with someone who instilled that confidence so that the company wouldn’t lose other top talent,” she says. Stoldt states that looking for such a “stylistic fit” was probably not a priority in the last few years.
“Currently, all searches are aimed at retaining talented people,” she says.
As CEOs get shorter terms and stakeholders demand that companies represent important values, it’s up to the board to find the type of CEO that best reflects these changes.
“The next generation of employees demands something completely different from leaders,” says Schwanhausser. “It puts another kind of pressure on the role of the CEO, and the board needs to rethink the kind of leader they are trying to choose.”
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