Is Your CEO Recession-Capable?

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At the same time, the micro-leader is effective at inspiring his or her employees and external constituents around strategy and vision.

5. Updated Succession. The fundamental shift in the game—and the skill set required to compete effectively—also needs to inform C-suite succession-planning efforts. Companies reviewing their succession planning should consider the 20%-40%-40% skill set as they identify heirs and then groom them.

The likelihood, however, is that most companies have developed short lists and identified each potential successor's gaps based on the old economy. Boards and top management teams must revisit their planning processes to make certain candidates and their development plans reflect the demands of the new economy. It may well be that their previously preferred candidate is no longer viable.

6. Identification of Assessment Problems. How should boards redefine their succession planning? The effort begins with understanding the faults of executive assessment as practiced now. Too often assessment looks more like a ritual than it does strategy. The former is centered on the execution of a process; the latter requires a deep understanding of what the company is likely to encounter in the future and whether or not executives have—or can develop—the right stuff to lead in a new world.

The board has failed its duty when executive assessments become a perfunctory exercise focused on how the company is performing rather than digging into the chinks in executive armor that future battles might expose. Too many boards tiptoe around their CEO and top management teams when it comes to detailed evaluations accompanied by constructive coaching and feedback. Tough, honest evaluation and feedback must include the top of the organizational chart.

7. Finding and Fixing Weakness. The path forward, a simple two-step process, is too often handled in a cursory way. First, each year the board needs to thoroughly measure the company's strategic direction and subsequent operational requirements. Companies are not static, nor are the leadership competencies required to succeed. As strategy evolves, can the CEO and likely successors keep up? As one example, even in today's "cash management is king" economy, many CEOs of Fortune 500 companies are far from being in a position where they touch cash, and as a result they don't set good examples about how to manage it. If CEOs are to assess the potential risks to their own company, they can't distance themselves from cash and cash management even when their organization is so big no one would ever think there were risks.

The second step is to create and then enforce rigorous development plans to address the weaknesses revealed in current and future succession candidates. The key is to understand the leader's risk clearly and then to provide support in order to manage it.

We challenge boards to ensure that their leadership searches and succession planning efforts are forward looking and, most important, that all candidates have been assessed against both the macroeconomic conditions and the future needs of the business. As the rules of the game change, so too must the qualifications of the players, especially at the very top of corporations.

Stephen A. Miles is managing partner-Americas for Heidrick & Struggles' Leadership Consulting practice. Nathan Bennett is the Wahlen professor of management at the Georgia Institute of Technology.