The Importance of CEO Succession

1/31/14

One surprising result emerged from the 2013 HR@Moore Survey of Chief HR officers: not all board members understand the importance of CEO succession.

This does not mean that they do not care about it, or think that they do not have responsibility for finding the right person. Rather, in conversations with CHROs, it appears that sometimes they get the importance of ultimately making the right decision, but just feel that until the time comes to make it (i.e., the CEO announces his/her retirement), the process consists of checking the box to make sure they can say they have a process in place. In other cases, the board members just seem to think it will be an easy decision either because they are confident they know who the next CEO will be or because they are confident one will be available when they need it.

In a session on CEO succession I was part of recently, John Hooper, CHRO at Weyerhaeuser, told how they began their CEO succession process in a way to get their board to understand its importance. According to him, they examined two adjacent industries that had seen multiple CEO successions that varied from unsuccessful to successful. They then examined the financial performance of the companies across those varying CEO successions. They were able to show that the difference between choosing the right CEO and choosing the wrong CEO led to hundreds of millions of dollars in lost earnings among companies in those industries. Needless to say, he suggested that this data helped the board understand the importance of using a thorough and rigorous process to find the next CEO.

I know that boards increasingly recognize the importance of CEO succession and they better appreciate the need for a good process. However, just as CHROs may only be part of one or two successions in their careers, board members may similarly be limited in their experience, and thus, not have clarity around the potential risk. Using an innovative technique like what Weyerhaeuser used may help them focus on their role as more than simply "checking the box."