The Case for CEO Successor Candidate Assessments

5/22/15

How many CEOs make huge strategic decisions without seeking as much information as possible?  Do they take what is available, or what is being fed to them by others, or do they seek other sources to gain the requisite information prior to making their decisions?  So, why would boards not do the same when considering one of their most important decisions: Choosing the next CEO.

As I wrote before, the current state of assessment regarding CEO successor candidates leaves much to be desired.  Most rely primarily on internal information (past performance, 360 degree appraisals, etc.) or available information for external candidates (past performance profiles, references, etc.)

First, boards may need to be convinced of the importance of the decision, a fact supported by the number of CHROs on previous surveys who noted that boards did not always realize the critical nature of the decision.  John Hooper, former CHRO at Weyerhauser said they got the board's attention regarding the importance of CEO succession by comparing the change in market value differences between companies that had made great CEO succession choices and those that had not.  Demonstrating a 40-100% difference in market values certainly provides data to get their attention.

Second given that all board members have held positions with significant decision-making responsibility, they all recognize the importance of having all of the relevant information possible before making big decisions.  Certainly some information may be more heavily weighted than other, but having all of the relevant information leads to better decisions than not having it.  Having personality, cognitive, and behavioral data on different candidates does not constrain boards, but simply expands the information base upon which the board can rely.

Third, not only do huge strategic decisions require a lot of information, but they require information expressed in common metrics (e.g., financial, market share, or operating data for each of the alternatives).  For instance, comparing internal candidates who have had different functional backgrounds, different career experiences, and different responsibilities does not provide good common information for making comparisons.  Comparing these candidates to external candidates who have both less and different information available makes the decision making task even more untenable.  However, having good common assessment data makes the task, while still difficult, much more manageable.

There you have it.  The importance of the decision.  The importance of having lots of data.  The importance of having common comparative data.  That seems to me to be the case that boards should both understand and embrace.