When your CEO resigns, will you be ready? The new approach to CEO succession planning–progression planning–will considerably increase your odds.
The business world is changing faster than ever, and so are CEOs, whose tenures are now typically just three to five years, according to the latest Korn Ferry research. Around 11% of newly appointed CEOs leave their posts within the first year, with approximately a third departing by the end of their third year in the role.
How your company deals with these CEO resignations or removals within this volatile environment will ultimately define its success. “How you manage your CEO succession is how you manage your business,” says Jane Stevenson, Vice Chairman, Board & CEO Services at Korn Ferry. It’s a simple statement—but one that’s been shown, time and again, to be true.
Traditional CEO succession planning is a short-term proposition. Boards that want to ensure a smooth CEO transition try to identify a potential successor before the current CEO steps down. The theory is that when the time comes, that person can seamlessly step in their predecessor’s shoes. But this approach often fails.
“A client came to us recently because they had just one option in their organization for their next CEO. Unfortunately, that person left,” says Stevenson. “As a result, they had no suitable options within the organization.” This limits the Board to a list of under-developed internal candidates who haven’t received the right coaching and mentoring to prepare them. And without a strong internal candidate, the race to find a suitable external candidate takes much longer and leads to a leadership gap.
But there is a way to ensure stability at the time of transition, no matter when it arises. By cultivating a group of potential new CEOs long before the current one departs and throughout all levels of leadership, companies can handle these transitions seamlessly. We call this CEO progression; a long-term process with a multi-generational view, where people at all levels are being assessed as potential CEOs, in the near or distant future. CEO progression sees the cultivation of diverse talent embedded into company culture and organizational DNA and aims to prevent exactly the kind of situation as the company in the example above faced.
“CEO progression is an ongoing process that starts the first day of a new CEO’s tenure and continues to the first day of the next CEO’s tenure,” explains Stevenson.
Featuring good strategic planning, wise governance and a focus on skill-building of the right internal—or in some cases, external—talent, it gives Boards multiple pools to choose from when the time comes.
Progression is especially sensible in an ever-changing business climate, when no one quite knows what challenges lie around the corner. Boards are able to develop a range of possible CEO candidates with different strengths, experiences and mindsets—each one of which can effectively address different business priorities in the years ahead.