CEO succession is getting a lot of attention lately. Professor Steven M. Davidoff of The Ohio State University wrote a column in the New York Times about it, with the title, “When Picking a C.E.O. Is More Random Than Wise.” He suggests that boards fall prey to all sorts of biases, fallacies, and bad practice when choosing a CEO. Here’s the lead to his story.
“There is little solid research on what makes an effective chief executive, which makes choosing a candidate the product of a board’s vision and personalities rather than one of careful contemplation.”
Meanwhile, over at Fortune Magazine, noted consultant and author Ram Charan weighs in on the same topic. He suggests that Boards are not doing their duty and seizing control of the selection process. Here’s a key kernel of Charan’s article.
“I’ve analyzed 82 CEO failures from the past 20 years and have been on the scene of many successions, good and bad. I’ve observed what works and what doesn’t. The winning approach is clear, and more boards should go firmly on offense and follow it.”
Charan lays out four key things that Boards should do when they select a CEO. Strangely, though, both Charan and Davidoff address the specific issue of hiring a CEO from outside and neither mentions succession planning, which changes the entire game.
Choosing a CEO from inside is a good idea in most cases. There’s no extended interregnum or rush to selection, either of which can poison the process. In general, insider CEOs perform better than outsiders. And, outsider CEOs tend to cost more.
Obviously, there are times when bringing in an outsider is the right choice. Alan Mulally is one of the best examples. But a good succession plan can help there, too, by giving the board deep insight into a company’s internal candidates.
A succession plan is not a magic talisman. You need to have a rigorous process for talent evaluation and selection and you need to exercise discipline to work the process. But if you want to increase the odds of choosing a great CEO, you need good succession planning.
Additional Resource
“CEO Succession 2011: The New CEO’s First Year” from Strategy + Business provides a good overview of many issues discussed here.
