Ending the CEO Succession Crises
Harvard Business Review – Ram Charan
If you want to get succession right, take these tips from the master. In an article written for Harvard Business Review, February 2005, Ram nails the issues that plague succession in larger organizations. Here is a summary of his points:

The trouble is…
In many organization CEOs are being replaced badly

Companies must do three things well
1. Have a deep pool of internal talent and keep it stocked
2. Boards should create and maintain a process for making decisions about candidates
3. Boards, considering outside candidates should be exacting, informed drivers of the search process, leading the recruiters, not being led by them

The trouble with outsiders
 55% of outside CEOs who departed in 2003 were forced out, compared to 34% of inside CEOs
 Two or more consecutive outsiders selected can have serious negative impact – on employees, partners, strategic position, continuity, momentum, energy to execute, morale. Focus shifts from the competition to internal stuff.
 Poor performance of an outsider is rewarded with rich severance.

The trouble with insiders
 As known persons, they may sail through lax succession processes
 They may hinder important changes – internal and market
 Some will not have the right experience – groomed skills may not be right for a changes in the market place
 Organizations with no or poor leadership development programs may have to go outside for 10 to 20 years

The trouble with CEO Development
 Meaningful development seems to stop well below the apex
 For a candidate to be ready by age 46, serious development should start by age 30
 Line managers and HR departments lack skills to discern who those rare people are
 Line managers and HR don’t know how to bring them along
 Most misjudge the business needs and the matching skills out into the future
 Commonly, employee skills become obsolete even as they develop them
 The larger issue is that true development happens on the job, not in a classroom
 It is also true that rotating talent through functional jobs (as believed in the 70’s) does not build senior leadership stuff

The trouble with Boards
 Only 21% of corporate directors responding to a Mercer Delta survey, responded that they were satisfied with their level of participation in developing internal candidates
  A packed Board meeting agenda is the chief culprit
 A vast number of search committee members have had no experience on CEO succession
 They don’t know the fundamental future needs
 They frame the search with only the current needs in mind
 They focus on what candidates are like that they don’t press hard enough on what they can and cannot do
 They rely too much on recruiters

The Trouble with Recruiters
 3 recruiters control some 80%of the Fortune 100 CEO search market and one or two people within those firms direct the most important searches
 When Boards don’t gel recruiters step in with their own criteria
 Sometimes the selection of a recruiter is flawed

How to Succeed at Succession
 Bolster leadership development, focusing on the very rare few
 The very best prep is steadily increase responsibility with larger and more complex P&L centers
 Boards should be vigilant – having a working process, spending two meeting a year on the topic