SUCCESSION PLANNING
Avoiding Pitfalls in CEO Succession

BY MIKE COHN

Selecting a successor to take over the business is one of the most important decisions you can make for your company. Even if retirement isn't on the horizon, potential successors should be groomed several years in advance of a transition. The pitfalls are endless if the wrong candidate is chosen. The following planning tips can help ensure the long term security and success of your business.

ARTICLE REPRINT This article is adapted from one that appeared in the October 2000 issue of Building Material Dealers magazine

Often, a company's number two person seems the most obvious candidate to step into the CEO's position.  Or, if you're running a family-owned business, you may be assuming your son or daughter will eventually take your place when you retire.  Bestowing the CEO role to someone without leadership capabilities, or demonstrated competencies is only asking for trouble. In my experience, the most obvious person for the job early on may not always be the best long-term decision.

Begin the succession process as early as four years before the current CEO or owner is expected to step down.  You want to have a wide selection of candidates to choose from, and plenty of time to evaluate their work, leadership skills, and track their accomplishments as they rise through the ranks.  The process of how you select the successor is just as important as who you select.

The following are some recommended practices from companies that have successfully groomed managers for the top job:

Meet at least once or twice a year with key employees to discuss the owner or CEO's retirement and succession plans.
Discuss who would take over in a crisis, reviewing possible options as the company's strategy shifts.  Keep in mind the future of your company may not resemble the past or present.  As the company evolves and expectations change, you may need to rethink your choice for the top candidate, and the criteria for succession.

Nurture a succession culture in which promising executives
are given jobs intended to broaden their skills.
These types of projects will indicate how a person responds to situations when they are in charge, and will groom potential successors for the top job. Even if they don't ultimately get the top job, the skills they develop will be important later as responsibilities are pushed down into the organization.

Pay attention to management development. Take advantage of local and industry resources by sending candidates to workshops on succession and other relevant topics. One of the biggest challenges a company can face is not having enough qualified and experienced candidates to choose from when the time comes.

Examine candidates' leadership qualities
as well as performance skills.  
It may be difficult to gauge whether an employee will succeed in the top position even though they have starred as a support player. The candidate with the record for increasing profit, expanding the customer base, or decreasing expenses, may not have what it takes to run the whole company.

One client promoted her chief financial officer to the president's job and then learned the new president couldn't motivate or inspire the employees. One executive succeeded, partly due to encouragement from the CEO, but when he stepped into the CEO position, he lacked the confidence to take action and make tough decisions without his former boss.

Assign projects where you can see successors interact
with their peers and colleagues.
Does your candidate energize others and inspire them to become leaders? Does he demonstrate a respect for others and listen to others? Does she involve others in big decisions? Does your candidate exhibit motivation and passion for their work?

Can he or she resolve conflicts instead of creating them)? Does your successor hold people accountable and encourage overcoming tough challenges? One way to recognize a true leader is by what the person does, rather than says. Or, as Peter Drucker says, you can spot leaders by the presence of willing followers.

Create an executive group of several CEO candidates and make them aware of challenges,business plans and strategies across the organization.
According to a 1999 Fortune article, a CEO's greatest failure is generally in the area of execution: not getting things done, being indecisive, and not delivering on commitments. Make sure your successors are aware of your business strategies and know how to facilitate change. A candidate may seem charismatic and visionary, but without a real work plan their vision may only be a pipedream.

Limit the drama of succession by involving your Board.
Talk with your Board about the kind of leadership your company needs in the context of its current challenges. Realize that a real successor may shake things up a bit. Have your successors meet the Board. There may be competition among insiders for the top job, or you may need to go outside the company and bring in someone new.

Involving the Board in the process is an effective way to add brainpower to the decision as well as some checks and balances in case you get too caught up in finding someone just like you. The last thing you want to do is keep people in the dark during a transition in management when your business' future is at stake.