Corporate boards are dropping the ball on their No. 1 job
'CEO succession is the board's No. 1 job,' says leadership expert and Harvard Business School executive education fellow Bill George. 'In my experience, across hundreds of companies, businesses rise or fall with decisions on CEO succession.' Yet according to a new report by executive search firm Heidrick & Struggles, only 26% of directors and CEOs say that chief executive transition is among their top priorities. Another 40% don't consider it a priority at all.
Tom Monahan, CEO of Heidrick & Struggles, says succession can get 'crowded out' if boards get pulled into crises or are distracted by other issues. 'As a leader, you have days where you say, 'the most important thing today is do this,' and you look up and [realize] 'I spent two hours on [my] coffee selection,'' he says. 'It turns out boards seem to have some of that as well.'
And when they do turn to succession, too often directors are trying to figure out who could step into the role immediately in the event of an emergency, such as the unexpected death of a CEO.
Instead, Monahan says boards should remember that CEO succession is a strategy exercise. 'We do see more boards and leadership teams treating succession as a process, not a project,' he says. 'If you look at companies where it's a project—CEO says I'm retiring, board says it's time to move, we kick into place a project—that compresses a lot of important strategic activity into probably too narrow a timetable.'
The Berkshire Hathaway model
Heidrick & Struggles's 'Route to the Top' report praises the CEO succession process at Berkshire Hathaway. CEO Warren Buffett earlier this year announced his plans to retire at the end of 2025. But Buffett, 94, had been talking about his replacement for more than a decade, and in 2021, the company anointed Greg Abel, who currently serves as chair of Berkshire Hathaway Energy and vice chairman of the conglomerate's non-insurance businesses. 'In a time when CEO transitions often spark volatility or uncertainty, Berkshire's process delivered confidence, continuity, and clarity to the market,' the report concludes.
CEO succession has become something of a parlor game in investor and media circles, especially at high-profile companies such as Apple and Disney. (Please check out my colleague David Lidsky's surprising take on who should succeed Bob Iger at Disney.)
The founder-CEO challenge
Replacing founder-CEOs can be especially challenging because the entrepreneur is so personally tied to the company and can have a hard time letting go. A founder is also one of a company's largest shareholders and may feel compelled to step in when the company struggles. Michael Dell, for example, returned to the top job at his eponymous tech company in 2007 after the computer maker started to lose market share, among other issues. 'If you have a founder who has been able to conceptualize an idea and scale a company, that's a rare set of talents, and you're not going to be able to replicate that,' Monahan says.
Monahan encourages boards to make clear which committee will be responsible for succession planning and then to make sure the topic is on the agenda. He says boards should have a process for meeting with executives in the C-suite, as those leaders are candidates to take over for the sitting CEO. And directors need to constantly assess the link between leadership and strategy to make sure they're looking at candidates who can support the business in the future.
And what is the role of the sitting CEO? CEOs should play an active role in training their successors, but 'don't groom people in your own image,' cautions George, who has served on the boards of Goldman Sachs, ExxonMobil, Target, Novartis, Mayo Clinic, and Medtronic, where he was CEO for 10 years. 'Figure out what [the company] is going to need for the next 10 years, and find people with the mental agility and courage to look at it differently than you looked at it.'
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