The top reasons companies should prepare for the departure of their CEOs is by having in place a corporate leadership succession and transition plan is essential to ensuring corporate leadership succession and continuity during a transition. Howard Schultz’s announcement last week that he would end his third tenure as Starbucks’ CEO early next year reminded boards about the importance.
There will come a time when some boards need to commence a search for a new CEO, like Starbucks did. Several months before Schultz plans to leave, the company will have the most seamless transition and continuity of leadership in its history, The Seattle Times reported.
A crisis is created when a CEO dies, resigns, retires, or is terminated. Delaying preparedness for the next opening at the top of the organizational chart increases the risk of extending the crisis. Several factors affect the outcome of the succession and transition of CEOs, including the morale, recruitment, retention and impact on the bottom line of the organization.
As CEOs leave, the number of departures is increasing. 395 CEOs were replaced at U.S. public companies in the first quarter of this year, up 29% from the same quarter last year. A report by the company shows the quarterly exits are the highest since Q1 2020, when 441 CEOs left.
IDENTIFY PRIORITY ISSUES
An important decision boards must make early in the process of hiring a new CEO is whether to select someone from within or outside of the organization. It has been reported that Starbucks is only considering external candidates to replace Schultz.
Rather than selecting candidates who are near the top of the organizational chart rather than internal candidates who are seen as ‘leapfrogging’ to the top, boards of directors often choose to promote internal candidates who are near the top of the organizational chart.
Approximately 85% of newly minted CEOs have worked in four roles over the last 20 years: chief operating officers, divisional CEOs, chief financial officers, and “leapfrog” executives promoted from below the second layer of management.
CEOs of leapfrog companies outperform their peers the most. Those who were former CFOs had the lowest likelihood of being among the top performers. The divisional chief executives offered the best protection against underperformance.
M&A Executive Search reports that the average tenure of a CEO is 6.9 years, but boards should make transition and succession planning a priority as part of crisis management plans. Regularly review and update the plans.
In order to be fully prepared when it comes time to hire a new CEO, boards of directors should take several steps now.
PREP AND UPDATE YOUR COPORATES SUCCESSION PLANS
Plan for the next CEO by establishing or updating policies and procedures. Making a decision on hiring a recruiting firm, appointing a committee or board member to oversee the search, and hiring a consultant is just a few examples of how to handle the search.
Boards of directors have the primary responsibility of succession planning. Absent a full-blown search, it is natural for the board to evaluate the senior executives (partly through the CEO, partly independently) and to consider how the board could serve, at least temporarily, in an interim capacity.
CONSIDER THE FOLLOWING FACTORS
It is possible that the exact succession plan will be influenced by the circumstances–in the event that the succession is made as a result of internal problems that preclude some or all of the internal candidates. An interim or permanent CEO might also be needed depending on the circumstances. There will be different implications if the succession is motivated by a CEO’s situation as opposed to a business need, for instance.
As soon as the departure of a CEO is announced, let people know when the succession plan will be in place. A regulatory filing by Amazon this month announced that Amazon’s global consumer business CEO Dave Clark would step down on July 1.
Clark’s replacement has not been named. CEO Andy Jassy announced Clark’s exit from Amazon in a blog post, saying the online retailer is currently finalizing a succession plan for him and will provide an update “in the next few weeks.”
To prepare for transitions to a new CEO, boards ought to conduct tabletop exercises with staff or consultants. It should include such scenarios as death, illness, leave of absence, resignation, retirement, and termination of the top corporate officer.
If your corporation is in need of the following, MCDA CCG can offer high class services to make sure the transition is easy and painless as possible.
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