Succession Planning: A Board Imperative

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What it comes down to is, directors should be experts in talent from a 1,000-foot level, and there are three ways to do this.

Benchmarking as Talent-Spotting

The first is to ensure a board has more than cursory exposure to its company's senior management. Directors should get to know the senior leadership well through presentations in the boardroom and regular meetings outside of it. The era when CEOs shielded directors from managers is long gone. CEOs are no longer sole conduits of information to directors, especially with new fiduciary responsibilities imposed on boards by Sarbanes-Oxley, such as oversight for financial reporting.

Secondly, boards should benchmark potential leadership. Benchmarking puts a continuous talent-spotting process in place that includes collecting information about potential successors, but it doesn't normally include approaching executives directly. Benchmarking provides boards with in-depth profiles of potential leaders, putting the board in a better position to assemble quickly a list of potential CEO candidates.

Because benchmarking requires a wide network of contacts and insight into skills and interests, boards often give the task to executive search firms. In the last year and a half Spencer Stuart has seen a dramatic increase in demand for benchmarking services from boards and has completed a dozen such assignments in just the last six months.

Moving Into the Future

Third, whether a board considers internal or external candidates or both, its starting point should be a specification for a CEO who reflects the strategy and context of a company's future, not its present, especially if the company has been successful with its present strategy and there is bias toward maintaining the status quo. The specification should reflect the best characteristics of world-class leaders in the company's business segment, including those of leaders in competitive companies.

This strategy requires strategic consensus on the board about future growth and a vision of where the company should be in five years. It is easier to ride the coattails of a successful departing CEO than to pursue an evolution or change in direction for a company. However a board that does this is often stuck in the past and not moving into the future.

Leadership changes are not easy, nor are they stamped from a mold. Each company is unique due to its strategy, situation, history, and culture. A highly skilled leader might not always be the best fit for an organization, given the organization's values, its way of operating, and its position in the marketplace. Boards should think carefully about fit because one of the biggest risks of bringing in an outside CEO is a poor cultural response.

Organizations Are Dynamic

An outsider can create ruinous clashes in a company by trying to impose systems the company rejects. On the other hand, some organizations need cultural transformation and "glass-breaking" CEOs, and boards should be prepared to stand by them until the CEOs get the hard work done. We have seen boards that do this well. They have stated publicly they expect radical change and, in so doing, they have helped deflect criticism.

Because organizations and marketplaces are dynamic, succession plans shouldn't be static. Boards need to update their plans and executive knowledge regularly. Things change far too quickly for a succession plan to be mothballed and remain unexamined. Boards must embrace the reality that few things matter more to an organization than having the right leaders in place today and in mind for tomorrow—while recognizing tomorrow can arrive at any time.

Dayton Ogden is the Global Practice Leader of Spencer Stuart's CEO Practice. John Wood is a Spencer Stuart consultant specializing in CEO recruiting and succession.