In fulfilling this role of managing the exit of one CEO and recruitment of a new one, good practice Boards think about this process ahead of time and document a CEO succession plan.
I am occasionally surprised when a CEO resigns and Boards are caught without an immediate action plan on what to do. They can flounder around, wasting critical time and momentum in the organisation, as meetings get scheduled and non-executive board members with already busy lives and full-time day jobs need to reprioritise time to figure out what to do.
In one instance, I know a CEO role who started a role telling the Board that they were only committed for three years, who then resigned to take another role three years later, almost to the day. The Board was caught without a succession plan in place, and with a couple of key board members about to go on holidays, it took over three months to get an advertisement out and six months to make a new appointment. In this case, the Board had three years to put a plan in to place but it just wasn’t prioritised. Adding to the challenges for that organisation, they had a significant financial performance decline over that six month transitional period.
Depending on your context, in can be good to transition directly from one CEO to another – for example, with one retiring and transitioning to an internal successor. But in other contexts, it can be good to have a break or pause and appoint an interim or short term CEO if there’s a difficult ‘fix’ job to do or a turnaround is needed. Alternatively, if the organisation is at a sensitive point, it may be better to have an existing executive with good internal relationships to act as CEO (steady hand) before you recruit a new CEO, who’s likely to want to make changes.
In my experience across 14 years with different not for profit boards, I believe organisations should have a succession plan for the CEO, senior executives and any other key technical or specialist roles in the organisation. The shortest succession plan I have seen was about half a page and the longest was maybe 3-4 pages.
In putting the plan together, the first task that the Board need to understand is what the transition is going to look like, and if it will be possible for one CEO to handover to the next, or if an interim CEO appointment will be required.
The Board should know the executive team well enough to understand if there is an internal candidate capable of running the organisation in absence of the CEO for any period of time. In medium to larger organisations, it’s not uncommon for a member of the executive team to step in to an interim CEO role for a few weeks if the CEO is traveling or on leave. That person may be appropriate to fill an interim CEO role for up to a few months while the Board go through a more formal recruitment process.
Alternative interim appointments can include a member of the Board stepping off the Board to take a role in the organisation – part or full-time – as interim CEO. There are also consultants who specialise in this area and are available for hire as interim CEOs as well.
So what should go in to a CEO succession plan?
As a minimum, I would suggest including:
- How you see the transition working from one CEO to next; whether an interim CEO will be required
- Names of internal candidates who have potential to be interim CEO or future CEO
- Names of external candidates from your network who have potential to be interim CEO or future CEO
- Latest version of the CEO’s position description
- How you will recruit for new CEO:
- If recruiting yourselves then any templates or draft documents for how to do that
- If planning to use a recruiter, then a list of potential recruiters
- Budget implications – including the costs of recruitment, interim arrangements and any potential shift in CEO salary from old to new.
You might also like to consider further plans and content including:
- Summarising key terms of current CEO contract relating to their termination and exit so you have all that information in the same place
- A draft recruitment process for new CEO, including timelines
- Which board members or committee will lead the work on CEO recruitment and any other critical tasks
- Include any insights or feedback from the executive team – e.g. input into key challenges for new CEO, what’s needed from cultural perspective, and these ideas can inform the advertising, updated position description and stakeholder communications
- Stakeholder analysis – what will need to be communicated and to whom when a CEO resigns or leaves (e.g. staff, Board, Members, funders)
- The role of Interim CEO and others (e.g. Board Chair) – will the Chair or someone else play a role liaising with stakeholders for instance while the interim CEO focuses on operations
- Draft request for proposal to go to recruiters
- Induction process or plans
- Probation review process or plans.
The point is not to have thought about every scenario and have a detailed plan for each possibility, but rather to have some plans documented so that, when this happens as it eventually will, you have a place to start from. It’s always easier having a draft of these documents that are reasonably up to date to start from.
Once established, the CEO succession plan should be reviewed and updated once a year. This role should be in the terms of reference for one of your board committees. When you look at it annually, it might not need a change, but it is good to re-look at the names of potential candidates and refresh the list as appropriate.
Perhaps you already have a CEO succession plan in place and wonder what you should do next? If you’re a medium size business or larger, say with 50 or more staff, then I would suggest that you look at some of this same thinking and apply to other members of the executive team that report to the CEO.
If you’d like some further advice or guidance on how to put a CEO succession plan in place for your organisation, then please contact our advisors.