CEO Succession Planning During Adversity

Every year CEOs leave office, voluntarily or otherwise. But what can we expect for CEO succession planning during adversity?  If we look back at the 2008-2009 financial crisis, the last time we were facing an unexpected future, more than 2,000 CEOs from publicly-traded companies left office. A record number. Some of those were planned, but many weren’t. Whether the board thought the CEO didn’t respond well to the early signs of trouble or maybe they needed a scapegoat to blame poor performance on, the last time we faced adversity, the CEO role was less stable.

That’s not to say we’re facing the same expectations for the current pandemic. The root cause of these two adverse situations is quite different. The current situation is a global phenomenon that is quite literally affecting every country. If you had succession plans in place prior to the pandemic, determining how to move forward in both process and timing is what you now need to address.

It goes without saying that CEO hiring is unlike hiring for any other roles. Getting the CEO hire wrong affects the entire organization, as well as the industry the company operates in, for years. According to a Russell Reynolds study of almost 700 CEO transitions at S&P 500 companies over a twelve year period, “the average departing CEO had a tenure of 5.9 years during that period, a surprising number of CEOs departed quickly: Fully 13.1 percent of new CEOs leave in under three years, with more than half of them leaving in less than two. Given the cost and investment in CEO appointments, these are expensive misses. When looking at just external CEO appointments, the numbers jump to a 17.2 percent departure rate in three years and 11.0 percent within two years—a notable rate of failure. These are not untested leaders or unsophisticated enterprises. These appointments were the product of the succession and onboarding processes used by some of the world’s largest and most successful companies. Yet, almost one in seven CEOs failed to be around for the third anniversary of their appointment.”

As the data shows, even during prosperous economic times, CEO hiring is difficult. Thus, during adversity, prudence is recommended. One of the key elements to consider right now is the timing of making a change. We agree with a recent Harvard Business Review (HBR) piece that states it may be best to stay with your current CEO even if you were in the final stages of the succession process. The caveat is that they still have the confidence of the board and the company.  

There is a good reason to stay the course in the near term, “the competent incumbent will have in place mechanisms to maintain as much stability as possible, such as established working relationships, decision-making procedures, and communication forums. Also, at times of high stress, employees prefer to be led by someone familiar who projects a steady presence and keeps a strong hand on the tiller as the company enters troubled waters.”

If an offer had already been made to a candidate and accepted, assuming they are still looking to join the organization, consider extending the transition period to give the current CEO and new CEO time to work together through the changes. Without the benefit of face-to-face interactions, this provides time to more fully learn while actually in the role, with the benefits noted above by working alongside a known entity with established credibility. 

One area to consider by announcing a new successor during a time of adversity is the risk of losing senior leaders that were also in the running for the position. They may check-out and start preparing to leave the company as soon as business gets back to usual. Working from home makes this far easier. If you still need to make the offer, the article mentions, “the CEO and board should agree on a plan to ensure key people remain 100% engaged. That might include committee chairs who have good working relationships with key people checking in with them and reporting back to the CEO, or retention packages to keep them in place until the company stabilizes.”

If the process was early in the process and you can push it back, we recommend doing so. You want to give the search the attention it deserves. And operating remotely is difficult both for you and for any candidates you are considering. Unless there are extenuating circumstances, you don’t want to rush the process, especially at a time of uncertainty. 

A last consideration is the state of the organization after the pandemic ends. Many companies will be in a very different position in the coming months than they were at the beginning of the year. The cash position may be very different, the supply chain may have new issues, the economy itself is in a different place, employees may have been furloughed, and consumers may have different buying habits. Are the candidates you were considering still qualified for the new state of the organization? You may need to reconsider the job qualifications and restart the search.

For more information on CEO succession planning during adversity, please read the HBR piece, and if you have questions, you can always send us a note, and one of our executive recruiters will get in touch with you.