Choosing the right CEO is among the top priorities for board directors. It may also be their most important responsibility. But the approach that most companies and their boards have used to find 21st-century leadership is a relic of the 20th century. Often, the board is simply presented with a short list of candidates assembled by others. “When it comes to CEO succession,” the chief human resources officer (CHRO) of a telecommunications giant told us in 2020, “we seem stuck with the best practices of the 1990s.”
This needs to change. The rolling waves of crises and challenges in the last two years—the pandemic, a strained global supply chain, inflation, talent shortages, geopolitical turbulence, as well as the rise of stakeholder capitalism—have created a new set of difficulties for corporate leaders. They have also scrambled succession plans in many companies, as some rising stars seemed to lose their footing when met with new leadership demands, while others raised their profiles by leading with agility and calm through all the churn. Consequently, the pressure to identify the right leader has never been more intense, which is why rethinking the succession process should be top of mind in boardrooms everywhere.
The problem with identifying top candidates often lies in how a short list is generated. Traditionally, the focus is on who the leader is without significant weight put on what skills he or she needs to deliver on the company’s strategy. If succession discussions are to be transformed into more of an upstream process for the board—and members are to have a clear understanding of what the company needs before discussing the best candidates—then the process must account for three distinct and entirely predictable challenges.
Because they are predictable, these challenges can be anticipated and overcome. First, start with the what and not the who. Doing so will lay out a more realistic and substantive framework. Second, from this vantage point, try to explicitly minimize the noise in the boardroom. Ensure that the directors are using shared, contextual definitions of core jargon, such as strategy, agility, transformation, and execution. Third, root the follow-on analyses of the candidates in that shared understanding, and base any assessments on a factual evaluation of their track records and demonstrated potential in order to minimize the bias of the decision-makers themselves.
An aerial photograph of office workers collaborating in a conference room.
Organizational culture: It’s time to take action
Many companies sidestep this hard work when developing their short list of candidates and rely instead on familiar paths: the CEO may have preferred candidates, or a search firm or industrial psychologist may have been asked to draft an ideal role profile or a set of competencies to prescreen internal and external candidates. This overemphasis on profiling the who of the next CEO triggers two failure points. It leans right into “great leader” biases (the notion that the right person will single-handedly solve all the company’s problems). And it bypasses the operational and cultural blind spots embedded within the company’s strategy. In a fast-changing business climate, this oversight leads to decisions that boards and investors quickly end up second-guessing.
We suggest an alternative approach, developed through our years of experience as leadership consultants. It’s a three-step framework that helps make the process more rigorous and drives outcomes that are more thoughtful and strategy-focused, and sometimes surprising.
“This pandemic brought out levels of fear and paralysis in people who operated seamlessly in a live, connected environment, but who were just incapacitated when they were remote,” Saundra Pelletier, CEO of Evofem Biosciences, told us in an interview. “It was hard to determine who those people were going to be, because you never saw that in a normal work setting. But there were some people who surprised me in a positive way. They had quiet confidence that they hadn’t had any opportunity or reason to show before.”
Here, in greater detail, are the steps required to build a more effective succession process at the board level.
- Start with strategy and execution, not individual characteristics. Certain foundational questions need to be answered in order to start the succession planning process: What problems does our strategy call for us to solve? How does our succession planning explicitly map to that strategy, while also bridging the gap between our legacy ways of working and how we must evolve for the future? How does it map from our legacy culture to the culture we want to have? None of these questions start with the who of the next CEO; all focus intently on creating a shared understanding of the future terrain and the density of the fog that management will have to navigate through.
Take the example of a global professional-services firm facing an emergency succession challenge. The company’s plans involved fast-tracking a process that was already in place, which had begun with hiring a search firm to assess the company’s top 20 leaders. (As with all the examples we will share in this article, the client company asked not to be named.)
The results of those 360-degree assessments created a challenge for the CHRO: too much information. She was faced with an eight-inch stack of the final reports. “Honestly, there’s nothing new here,” she told us, “and the language is so abstract. I can’t put this in front of the board.”
We suggested she focus on the set of problems that the next CEO and his or her team would have to solve. Did the candidates have the capabilities to deliver on the company’s strategy? That led to an awkward silence. The HR leader realized that the assessment process had done a thorough job of answering different questions, probably the wrong ones: what does a competent CEO look like on paper, and who among our top 20 leaders stacks up best against that benchmark?
Delivering a strategy may seem like a table-stakes question for directors, but drilling down a layer to understand what obstacles need to be overcome to make the strategy a reality can present considerable challenges. What’s more, the obstacles differ from company to company. Many official strategy documents, when applied to succession, suffer a kind of altitude problem: they are either too lofty and vague, simply describing what the company does, or they are too deeply in the weeds, outlining a list of short-term priorities or initiatives. Robust succession demands a different level of clarity on the what and the how of the strategy—which is something the board should be involved in outlining before it creates a succession short list.
“When you peel the onion on whatever the company’s articulating in terms of how they’re going to win in the marketplace, it’s about the ‘right to win,’” said Don Knauss, the former CEO of Clorox who serves as a director at McKesson, Target, and the Kellogg Company. “It’s amazing how many times companies go down a rabbit hole where they really don’t have a relevant point of difference or a real competitive advantage—either in their cost structure or in their capabilities—to win in the marketplace.”
But it is that level of detail, not the hallmark competencies of CEOs in general, that will help boards choose the leaders who can make things happen.
- Build a shared framework for assessing and discussing candidates. In their latest book, Noise: A Flaw in Human Judgment, Daniel Kahneman, the Nobel Prize–winning economist; Olivier Sibony; and Cass R. Sunstein unpack the phenomenon of “noise” in decision-making. Noise, in this sense, is generated by a lack of clarity and alignment on the key criteria that decision-makers use to guide their choices. In the context of succession, noise is created when directors have different, unstated, and often unconscious interpretations of the strategy; its operational and cultural implications; or the qualities, skills, and experience that matter most to them. Words like agility, resilience, strategy, vision, and followership, left undefined in the organization’s specific business context, inevitably lead to boardroom discussions in which the metaphorical noise in the system is loud.
That is why the second step is to reduce the noise through the explicit definition of the most important hurdles facing the company. In one organization we worked with, the board had to pick a successor to the founder, who had built a culture that was crucial to its success. Directors referenced the word vision over and over without pausing to clarify what it meant. When we pointed this out, after careful deliberations, they agreed that vision in this context constituted the core competitive advantage of the company: its ability to anticipate what clients needed two to three years out, often before the clients recognized those needs themselves. That specificity led to more constructive conversations about how vision might be identified in the skills and track records of future top leaders.
Many official strategy documents, when applied to succession, suffer a kind of altitude problem: they are too lofty and vague, simply describing what the company does.
Another example played out in a global infrastructure company that generated the lion’s share of its revenue within North America but had identified big growth opportunities outside that core market. Through conversations with management and many of the directors, it became apparent that although there was great clarity about each region’s strategy, there was not a shared understanding of the broader enterprise strategy—nor even agreement that one existed. Opinions differed on whether the core North America market or the growth opportunities in other markets deserved a greater focus. Once the CEO and directors agreed on the balance that the company should strike between today’s revenues (North America–dependent) and tomorrow’s growth (emerging markets still several years from meaningful contributions), succession discussions shifted from theoretical to practical evaluations of the executives best suited to lead the company’s strategy over the next two to three or five to six years.
Another benefit of this approach is that it reduces the importance of finding the superhuman leader who can do it all. In the context of this global infrastructure company, the conversation shifted from finding a do-it-all CEO to choosing a top team that, as a coordinated C-suite, could work together to drive growth both inside and outside North America.
- Structure the process to mitigate bias. Bias is different from noise. Noise is a lack of shared understanding on the decision criteria, whereas bias comes into play when directors rely on personal preferences for evaluating candidates against those criteria. For all the work that has been done to reduce unconscious and implicit bias through training programs, there is little evidence that it has led to sweeping changes in organizational behavior. For example, with the professional-services firm mentioned above that faced an emergency succession, one director privately offered the CHRO his summary of the three leading contenders: “I see the strategic candidate, the safe pair of hands, and the woman candidate.”
Such blunt language can be challenged in the moment, but the more subtle challenge lies in first structuring discussions in ways that surface the biases that inform how board members see various business risks and then finding the best ways to address those biases. This requires an analytical approach to both weighing candidates on the core questions of their suitability to drive the strategy and streamlining the process to highlight outlying opinions against a backdrop of objective facts and subject matter expertise. The emphasis should be on objective facts. Without this discipline, the risk increases that the CEO or board will name a successor based on a subjective filter of comfort and familiarity.
The emphasis should be on objective facts. Without this discipline, the risk increases that the CEO or board will name a successor based on a subjective filter of comfort and familiarity.
That was the challenge the board faced at a family-led organization that was navigating a difficult succession process. The retiring father wanted to conduct a fair and objective passing of the baton to one of his two children. He had a strong bias toward the elder sibling because that’s what had happened in his own case, when he took over from his father. But as CEO, he was also worried that his vote carried outsized weight with the board.
The CEO and CHRO used a framework to help the board see the two leading candidates in a more analytical and factual light. The younger sibling’s experience at the company highlighted his innovative mindset, his ability to pivot operationally as needed, and the loyal following he had built among his teams in the smaller parts of the business he had led. The older sibling had a greater breadth of experience across all lines of the organization, and he used that wide-angle lens to constantly assess and adapt to challenges to the short- and long-term business performance. Armed with this view, the board asked itself which skill set was more important in driving the company’s success over the next several years. Ultimately, they chose the elder sibling, but their choice was informed by a fuller discussion of the rationale and risks inherent in their decision.
Framing the issue
The goal, of course, is not to remove bias from the process altogether—that’s not realistic—but rather to reduce its unintended impact so that directors are clear and honest about the deliberate trade-offs they are making. And that requires a more systemic approach to improving decision-making.
One of the most effective tools for reducing bias is to have directors rate candidates independently and confidentially on agreed-upon criteria and then reveal their scores at the same time. Through this process, differences of opinion quickly emerge, and those moments can be used as a springboard for a discussion aimed at closing the gaps among the various perceptions of candidates’ strengths and weaknesses.
In the case of the professional-services firm, the CHRO and interim CEO called a special session of the board, locked all the directors in a room, and said they would not get a candidate short list until they had agreed on a few foundational questions about the future of the company. Two sessions, seven hours, and many salads and a few wine bottles later, the board had settled on three core topics: the technological shifts and trends that would shape the firm’s future work with clients, the new geographic markets most critical to growth, and the structural and cultural changes the company would likely have to undertake to successfully drive the strategy.
Several of the directors had deep experience in one of those core areas, so the board took a divide-and-conquer approach. The CHRO developed a short list of thematic questions and then paired board members to form groups with complementary expertise. Each pair explored these questions with the leading CEO candidates. This added a consistency and uniformity to the interviews. The CHRO and board also agreed on a more general set of questions that directors would respond to immediately following their one-on-one interviews with candidates.