Handling a Hidden Succession Risk

Governance literature in recent years has moved succession planning and risk management to top priorities for boards.  Succession planning is now considered a multi-year and hefty initiative to avoid the risks associated with succession of leadership, e.g. loss of momentum, lack of continuity, etc. etc.

What’s the Risk?

But, there is a largely unexamined risk that I want to shed some light on, and that is the risk of misalignment between a governing board and a new chief executive. For years, research has consistently shown that most CEO’s don’t consider that their boards add value.  Well, if you are not adding value, then you are a liability.  In short, the board is considered a problem.  Hence, that relationship is a very real risk for retention of a CEO.

A good succession planning program handles that risk because the incumbent will have had at least one year of active work with the governing board.
However, only a fraction of organizations, especially in the non-profit arena, have a robust succession planning program.  In these situations, the risk of board-management misalignment is not mitigated.

So, what are those risks?  Here are some the come to mind:

1. During the process of the breakdown of the previous CEO-board relationship, the board engaged in micro-management to handle the performance problems they perceived with the CEO. Once, engaged in micro-management and once having had the relationship with a CEO go bad, it is nearly impossible for a board in the near-term to return to a proper role relative to management.  A potentially highly effective CEO will not stand for long in such a situation, risking another round of turnover that damages the organization.
2. The board has put in place constricting policies that retard the ability of the new CEO to move the company forward.
3. The board becomes risk adverse.
4. The board is unable to make decisions in a timely manner because of prior experience with not getting good data for decision-making.

The above are all common outcomes from a history containing erosion of board-CEO trust.

Handling the Risk

What you can’t get away with is assuming that you will turn over a new leaf and leave the past behind.  That is a rare occurrence.  We humans are driven by our experience, and protecting ourselves from losses we have experienced previously trumps attempts to behave differently. The new CEO is going to need to earn trust.

So, what to do?  Here are some suggestions:

1. When interviewing new CEO candidates, be candid about how and why the previous relationship went sour. Full disclosure avoids surprises and prevents a mis-hire.
2. Dialogue with the candidates on how they see the board-CEO relationship working and then dialogue on whether that is a fit with how your board operates.
3. Communicate with the candidates what you saw as the strengths and weaknesses of the incumbent and what strengths you are looking for now given the condition of the organization

In short, communicate openly and as thoroughly as possible about the prior problems rather than simply trying to sell your organization to the candidates.  Your honesty will earn you points and will also prevent putting a square peg into a round hole.

Interested in learning more about the board and succession planning? Check out our post on the board’s role in bringing in a new CEO or contact us with specific questions.