Best practices in

succession planning
Leadership transition from one CEO to the next is a risky time for myriad reasons.
Historically, the risk was addressed by the anointing of a successor by the incumbent
CEO. Once that successor was identified a great deal of the CEOs time, as well as
that of other key individuals, was invested in making sure they were ready when
their number was called.

Stephen A Miles Ted Dysart

Managing Partner Managing Partner
Leadership Consulting Board of Directors

In the post-Sarbanes-Oxley business
environment, however, CEO succession
has become something that requires
the full consideration of the board.
After all, this group is responsible for
governance; it is the boards duty to
develop, implement, and then see to it
that a thoughtful and thorough succession
planning process is executed.
The CEOs responsibility has become much more as
a service to the board as should be expected of all
managers, it is their responsibility to be continually
preparing one or two strong internal replacements.
And the CEO also has a duty to the long-term effectiveness
of an organization. As pundits are pleased to pronounce,
the true test of a leaders effectiveness is the companys
performance after their departure. CEOs have a legacy to
protect and they likely have a personal financial interest in
the ongoing performance of the company. For these and
other reasons, they should be eager to support a top-notch
succession planning process.
Succession planning is an activity that most companies
would be quick to say is in place. Unfortunately, we
know from our work in executive search that succession
planning efforts are all too often woefully underdeveloped,
unevenly executed, and sometimes simply ignored. Boards
that perpetuate or permit a happenstance approach to
succession planning have abdicated their responsibility
to shareholders. A robust process that allows boards to
manage this strategically and proactively must be in place.
My purpose here is to outline a straightforward four-step Step one
process that Heidrick and Struggles has developed based
on deep experience in talent assessment and executive
Analysis and planning
search. This process provides a roadmap for directors
The key activities in the first step of the process involve
in their efforts to implement what can truly be called a
efforts to develop a very solid and very deep understanding
best practices approach to succession planning. Such
of two things:
an approach protects the interests of board members,
employees, shareholders, and other constituents, and also a) the most significant challenges the company and its
serves to give them confidence in the long-term prospects industry are likely to face over the next four to six years
for the company.
b) the executive competencies and experiences that are
likely to convey the capability to lead the company as it
confronts those challenges.

A best practices approach
to CEO Succession
What does a best practices succession planning process
look like? The process involves four steps. Two of the steps
take place well in advance of any succession event, one
involves the succession event itself, and one follows as the
newcomer is brought on board.
Because a succession plan is a living document, the relevant
four to six year window continues to move. Consequently,
these efforts have to be continually updated. The challenge
in getting commitment to this critical exercise is a tendency
for those involved to think the answer for the companys
future is simply to get a younger clone of the incumbent
CEO. Rarely is this a winning strategy in only the rarest
cases are the challenges ahead going to require the same
skills that worked in the past. Take as an example GE.

Owns the process. Confidence in a successful CEO appointment and transition.

Board Demystification of the succession process and allaying of apprehension. Development
of a robust leadership pipeline, the number one sign of good governance. Best practice
is for the Board to look inside and outside the organization using a proven process and
methodology for evaluating leadership talent.

Input into the process. Their number one job is to have developed at least one
Outgoing CEO potential successor inside the organization. The provide input into the current and
future state of the business model and strategies. They also provide input to the team
conducting the internal assessments in terms of their objective and dispassionate view
of the internal candidates.

A clear understanding of the internal process and the required CEO skills
Senior and competencies. A high-level developmental roadmap and detailed personal
Management coaching plan (internal candidates) which can be refreshed every six months
Team depending on the transition time frame.

Assurance that the Board is rigorously managing the succession process and
Shareholders performing active oversight of leadership development. Shareholders gain confidence
that the best leadership is being identified, recruited, developed, and retained based
upon the ability to drive business performance and enhance long-term shareholder value.

Benefits of best practice succession planning

Ensuring a smooth succession is one of the most critical responsibilities for the Board of Directors and Chief Executive Officer.
Best practice succession planning gives the Board, management team, employees, and shareholders confidence in the long-term
future of the company and reduces succession risk.
The past three CEOs, Reg Jones, Jack Welch, and Jeff Step two
Immelt, are starkly different people. In its leadership
succession, GE has done a good job of looking through the
Candidate development
windshield rather than in the rear view mirror in order to
There are three types of candidates that should be
understand what the next CEO needs to bring as a leader.
considered in succession. The most important pool consists
Doing this well requires first a rigorous effort to understand
of internal candidates. Whereas there is transition risk for
the industry, its future, and the companys likely competitive
both internal and external successors, in most instances the
position moving towards the future. By investing in a
risk is lower for the former group just one of the reasons it
credible forecast about what the future holds it then
is the most sensible place to start. As noted above, a ready
becomes possible to more precisely diagnose the skills and
now candidate is unlikely to emerge. Frankly, if succession
capabilities that a CEO will need in order to succeed.
planning is well-done, ready now is moot what is called
for is the identification of people who could be made ready
Our experience shows that a second challenge in regard to
in two to four years. A great deal can be done in that time
succession planning concerns timing. First, there is a strong
period to develop an executive, whether it involves rotations
bias among groups charged with succession planning for the
in different functional areas, international assignments,
ready now candidate. Lets be frank about it the ready
exposure to the Board, a cross functional company wide
now candidate is a theoretical concept, not a reality. The
project or something else. For this group the key task
odds the perfect person finds their way to a leadership
involves holding each up to the requirements developed in
opportunity is so improbable that any effort to plan for it is
step one and then developing a robust plan that is reviewed
a fools errand. Instead, analysis and planning activities need
and refreshed every six months to get them to a place where
to focus on identifying candidates who, with two to four
the Board views them as a truly viable succession candidate.
years of investment, can be made ready. Second, companies
Heidrick & Struggles Leadership Consulting Practice has
are often either too quick or two slow to develop successors.
partnered with many Fortune company Boards of Directors
When the successor is ready too soon they become a
to aid in the internal assessment, market calibration and
target for headhunters seeking talent for other firms and
development of potential successors helping to put a robust
the investment is monetized externally by someone else;
framework in place for development.
sometimes your competitor! When the successor is ready
too late the company will find itself poorly led while the
The second group and third groups are usually identified
new executive gets their sea legs or they will have to hastily
with the help of the executive search side of Heidrick &
go to the outside looking for someone.
Struggles who identify talent in the industry and rising

By investing in a credible forecast

about what the future holds it then
becomes possible to more precisely
diagnose the skills and capabilities that
a CEO will need in order to succeed
 CEO succession planning process template
Step one
Analysis and planning
Define the most significant value
creation challenges the company
will face during the next 3 5 years
and the CEO leadership experience
and competencies required to
meet them.
Report of market conditions;
potential competitor actions
Succession timeline and
Key deliverables
process parameters
CEO position specification,
required competencies, and
selection criteria, competency grids
Engage Board
Understand current strategic context,
timing for succession, and risk issues
Agree on the role of incumbent
CEO (and other stakeholders)
Major activities
in the process
Develop the behavioral and
experiential competency grids
Step two
Internal and
external candidate
development
Systematically develop
high-potential external candidates
and assess internal candidates
Talent map
Internal talent map of potential
CEO successors with current gaps
External candidate targets aligned
with desired leadership attributes
Engage senior team
Launch external market scan;
identify key candidates
Produce gap analysis of
internal and external CEO candidates
leadership experience and
personal competencies
 Step four
Transition
Ensure a seamless transition and
on-boarding experience for the
new CEO and company at large
Step three
Search and selection
Complete a thorough scan,
conduct thorough interviews
and select a final candidate

Short-list of candidates and New CEO announced

recommendations to Board
12 month transition plan
Comparative analysis of all
Mid-year 360 review and
candidates vs. position specification
follow up with Board
Final selection and
Last 90 days outgoing CEO exit
CEO employment contract
and transition support

Conduct internal assessments Engage senior team

and external market scan
CEO coaching: plan for first 12 months
Facilitate Board evaluation of each
Plan and implement
external and internal CEO candidate
transition communications
Facilitate Board discussions on
Advise on the conversations
internal vs. external candidates
with those that were not selected
Optional move to engage and
Senior Team retention and transition
assess external candidates
risk planning and discussions
Through stars or best athletes from across all industry sectors.
Normally, these executives lie beyond the companys reach
in terms of development. In those instances, the ongoing
goal should be to identify these people to help keep the
investments board honest about the relative quality of the talent it is
developing inside. In other cases, however, these executives
are not unreachable. When companies are able to execute

in the new a best practices approach to succession planning they can

actually take advantage of the considerable lead time to
go outside and catch a rising star. Through investments
in the new executives development the board not only
executives increases their companys bench strength but also has a
chance to explore their likely effectiveness as a potential
CEO successor. Both Jim Donald (at Starbucks) and John

development Chambers (at Cisco) ascended to CEO positions in this

way. Jim Donald came in as the President of the Americas
and John Chambers was recruited as EVP of sales and

the board not

operations. This element of a succession strategy can
decrease the ultimate transition risk and allow the Board
to observe a successor before making the ultimate decision.
The opportunity for both the executive and the board to

only increases work together greatly reduces the transition risk should
the CEO role prove to be an opportunity.

their companys Step three

Search and selection

bench strength As the anticipated transition approaches, the preparation

of the internal candidates should be coming to closure.
Simultaneously, the ongoing scanning for external

but also has a candidates should be updated and considered to identify

at least two viable external candidates. At this point our
experience shows that the most effective way to proceed

chance to explore
is to begin by inviting each internal candidate to give a
presentation to the board where they describe their vision
and strategy for the companys next five years. After a
presentation and a moderated question and answer session,

their likely the likelihood is if the development of internal talent has

been successful a clear winner will reveal themselves. If
that fails, then it is time for the search to turn to external

effectiveness
candidates. The challenge with external candidates of
course is that they represent the devil you dont know.
Not only do they present an incomplete picture to you,
but your company is an incomplete picture to them
as a potential the uncertainty runs both ways. As a result, the transition
risk is much greater. Generally, we advise boards that unless
a case can be made that the external candidate has an

CEO successor upside at least twice what is envisioned from the internal
candidate they are not worth the risk. Of course, much
of this is difficult to quantify. The key point to get across,
however, is an important one the increased risk associated
with an external candidate must come with an increased
expected benefit.
Step four
Managing the transition
A best practices transition process takes place in three
phases: pre-boarding, on-boarding, and transition coaching.
We consider pre-boarding to be the time period between
the selection of the successor and their first day on the new
job. Before discussing it directly, some observations are
warranted. First, internal successors begin some semblance
of pre-boarding as soon as they become a potential
heir. And, external successors experience pre-boarding
as company outsiders. Finally, there are some dramatic
episodes such as the abrupt removal of a CEO that
preclude formal pre-boarding. So this critical transition
step takes many forms. In the end, those responsible for the
transition have to do the best they can with what they have
available. That said, here are some characteristics of pre-
boarding that represent best practices:
deliberate exposure to board members so
that both they and the successor can begin to
strengthen relationships
structured and sufficient time with predecessor to
design and then execute the handing over taking
over process; particular attention needs to be focused
on the transfer of tacit knowledge such as the difficult
to quantify elements of culture and norms
opportunities for the successor to develop
understanding of the talents of the top management
team in place
for internal successors completion and reinforcement of
the work plan implemented as part of the effort to get
them ready
for external successors a quick screen to identify
any substantive areas requiring attention such as
requirements for crash courses in the industry, the
company, its strategy, and its people
Next, on-boarding refers to the events that are in very
close proximity to the successors first day on the job.
Again, internal and external successors will experience
this differently, but best practices here include:
coming to closure with relevant parties on a
plan for the new CEOs first year including
measurable metrics and milestones
active engagement of the senior team with
the design of the roll out of this plan
development and implementation of communication
strategy for the roll out and execution of the plan
Finally, transition coaching should be planned for
new leaders during their first year in place. Providing a
coach offers these individuals a supportive and apolitical
resource that in the end provides two critical functions.
First, a coach will help the successor continue to do the
personal work they began when the company initiated their
succession development process. Second, a coach allows the
successor access to an honest broker who can keep them
focused on their key activities during their first ninety days
and beyond.
Conclusion
Hand offs from one leader to the next are tricky because
of the complex nature of the position, the dynamic nature
of companies, and the politics and intrigue that surrounds
them. For that reason they represent a time when the
company is vulnerable. The work we have done at Heidrick
and Struggles on the best practices succession program goes
beyond simply protecting a company during a vulnerable
time it allows the board to capture the maximum value
that this opportunity provides. By crafting a thoughtful,
strategic approach to succession, the board fully addresses its
governance responsibilities and sets the new leader on a firm
course towards future success.
The work we have done at Heidrick and Struggles
on the best practices succession program goes beyond
simply protecting a company during a vulnerable time
it allows the board to capture the maximum value
that this opportunity provides

To learn more about Heidrick & Struggles Leadership Consulting services,

please contact Stephen A Miles on +1 404 572 0047 or email smiles@heidrick.com

For further information on the CEO & Board Practice,

contact Ted Dysart , Managing Partner on +1 312 496 1000

Heidrick & Struggles

303 Peachtree Street NE, Suite 4300
SunTrust Plaza, Atlanta, GA 30308
United States of America

www.heidrick.com

2007 Heidrick & Struggles International Inc.