Select the Right CEO with the Best Practices in Succession Planning
Among the main reasons why governance may fail in an organization is the lack of planning for CEO succession. Learn how you can implement the best practices in succession planning and use the Balanced Scorecard and Strategy Maps to successfully select and prepare the next CEO.
For many companies, succession planning is of little relevance compared to more pressing matters such as Customer Relationship Managing or Strategic Planning. Yet, dedicating too little time to this matter may leave the company vulnerable in the event of an unplanned succession or with a less-than-ideal Chief Executive Officer at the helm.
There are many CEOs today who are kept in their position for their people skills and demeanor, rather than for their knowledge and expertise. It is evident that the Board of Directors needs an objective and effective way to evaluate and rank both the current and potential CEOs in order to maximize the company’s probability of success.
The steps listed below have their roots in the Balances Scorecard methodology. By following these steps, the board will be able to identify which candidates will more readily understand the company’s mission, vision and differentiating value and be capable of actuating them in a way consistent with the company’s strategy.
1. Understand the Company Strategy
A good board will start off by describing the qualities and expertise a CEO is required to have to successfully lead the company’s strategy. Then, it will embark on a journey to find said candidate.
This procedure is actually a part of a broader process that consists of (1) constantly evaluating the evolution of the company’s strategy and competitive threats and (2) determining the strategy execution abilities of all top-level executives, as well as their capability of obtaining outstanding results. The board must also take into consideration the leadership skills the CEO must have in order to execute strategic change within the company.
Candidates must be able to effectively discern, optimize and coordinate the organization’s value-creating activities to be considered as viable options. To assess this ability, it is firstly primordial for the board to understand exactly how the company generates value. Studies show that 40% of board members do not completely grasp how their company generates value for its customers. They should therefore develop resources to systematically obtain relevant information on these processes.
Jay Lorsch, corporate governance expert from Harvard Business School, recommends that board members map out their company’s strategy. The Balanced Scorecard is an ideal tool for this purpose as it helps executives map out the company’s most important procedures and set clear performance objectives for each of them. It also clarifies the cause-and-effect relationships that exist between the company’s procedures and business units, and how they impact each of the company’s goals. Finally, by developing a Strategy Map, board members will be able to visualize how its many procedures turn into tangible economical results.
2. Develop the Job Profile
It falls upon the Human Resources department to enlist the skills, knowledge, abilities and passions the future CEO needs in order to implement the company’s critical activities successfully. As with all intangible resources, individual talent must be allocated where it has the best chances of yielding positive results, both for the company and the individual. By carefully analyzing the Strategy Map, the selection committee will be able to focus on finding candidates capable of making the most of the company’s intricate, interconnected system.
3. Evaluate Internal Candidates
The selection committee may take advantage of the Balanced Scorecard by using it to track the performance of potential candidates. They may evaluate their achievements in terms of targets accomplished. They may also evaluate the nature of the projects they have undertaken throughout their trajectory and develop a career plan to strengthen their weaker areas. In addition, the team should establish a series of medium-term milestones to measure their progress.
By identifying potential candidates early on, the selection team can create a solid communication process, thus enriching the relationship for both parties.
4. Evaluate External Candidates
The Strategic Map can help the company locate the areas in which it lacks internal talent. It, along with the job profiles previously developed, may orient the selection team in its recruitment process. It helps them stay focused on the indispensable qualifications they need candidates to meet.
It will not come as a surprise that previous success and networking do not ensure that a candidate is the best for the job; many times they do not meet the requirements enlisted by the selection team. As a general rule, we recommend that the company stick to the profile it has previously developed, ensuring that it will allocate a greater value to the skills, competencies and background that truly matter for the organization.
5. Calibrate the Evaluation Based on the Strategy
Performance-based compensations are powerful incentives when properly used. However, the company must be careful to not include too many indicators in the compensations calculation, for it may dilute its desired effect. On the other hand, using too few indicators may lead people to have a negligent attitude in fundamental activities. We recommend using three or four on average. Again, the HR department may look to the Balanced Scorecard to define exactly which indicators are the most indicative of future success for the company.
By using the scorecard to aid and guide the succession process, the organization ensures its selects and prepares strong leaders, capable of delivering great results.
At TRISSA we can help you develop personal Balanced Scorecards for your star candidates and design a talent development mechanism that will help smooth the succession process. We can also help you tailor your Balanced Scorecard and Strategy Map to reflect your company strategy and value-creating process.
Author: Trissa Strategy Consulting
Source: Cohn, Jeffrey and Rakesh Khurana. "How to Succeed at CEO Succession: Aligning Strategy and Succession." Balanced Scorecard Report (2003): 9-11. Online journal.