Overseeing the successful succession of the CEO is one of the board’s most crucial responsibilities. Well-developed succession plans are multi-faceted, consider both short-term challenges and the long-term direction of the company, and identify the skills needed for a leader to successfully navigate both.
Effective boards develop succession plans for the anticipated retirement of a CEO over multiple years. They focus on how the succession timeline aligns with the long-term strategy of the company and determine the attributes and experiences needed in a leader to achieve that strategy. They also spend time with potential CEO candidates while tracking their development and suitability for the CEO role.
Equally important is the board’s succession plan in the event of a crisis or unplanned departure of a CEO. These plans aid the board in evaluating the readiness of potential internal and outside candidates, and outline the management team’s and board’s immediate actions and responses.
In any succession scenario, there is no substitute for a well-prepared board with a clear picture of the company’s long-term strategy and the type of leader needed to achieve it.
Planning for CEO succession
CEO succession is one of a lead director's primary board duties. Lead Director Network members discussed six key aspects of planning for CEO succession: forming a productive partnership with the CEO on succession, identifying potential successors, selecting the next CEO, emergency succession situations, successful transitions, and combining CEO and chairman roles.
A changed and changing executive compensation environment
Compensation Committee leaders discussed challenges that will affect executive compensation in the next few years, notably CEO succession planning and goal setting. The biggest trend, the leaders said, is toward more robust succession planning below the CEO.
The relationship between the lead director and the CEO
Members of the Lead Director Network note the importance of the lead director and CEO relationship. They discussed factors that affect the relationship and the responsibilities of the lead director as a result of this relationship, including agenda setting, chairing executive sessions, evaluating the CEO, and terminating the CEO.
The lead director’s role in succession planning
Lead Director Network members agreed that succession planning for the CEO and top management team is a critical board responsibility. They discussed long-term succession planning, emergency succession planning, and the role of the board and compensation committee in both.