CEO succession is the process by which
boards of directors
A board of directors is a governing body that supervises the activities of a business, a nonprofit organization, or a government agency.
The powers, duties, and responsibilities of a board of directors are determined by government regulations ...
of an organization ensure that it can transition to a new CEO when their existing CEO retires or can longer carry out their CEO position. It is a part of
succession planning
Succession planning is a process and strategy for replacement planning or passing on leadership roles. It is used to identify and develop new, potential leaders who can move into leadership roles when they become vacant. Succession planning in ...
to ensure continuity in leadership from one person to the next holding the CEO position.
Commercial importance
CEO succession is one of key functions of a
board of directors
A board of directors is a governing body that supervises the activities of a business, a nonprofit organization, or a government agency.
The powers, duties, and responsibilities of a board of directors are determined by government regulatio ...
. Changing the head of an enterprise impacts
company culture
Organizational culture encompasses the shared norms, values, corporate language and behaviors - observed in schools, universities, not-for-profit groups, government agencies, and businesses - reflecting their core values and strategic direction. ...
, board/CEO relations, and perceptions from multiple
constituencies
An electoral (congressional, legislative, etc.) district, sometimes called a constituency, riding, or ward, is a geographical portion of a political unit, such as a country, state or province, city, or administrative region, created to provi ...
inside and outside the business. The disruption that occurs can impact performance in a positive, neutral or negative manner. Successful companies manage this process well in advance with a concerted set of processes and milestones. Effective CEO succession requires a well-defined program that ensures a supply of highly capable candidates ready to assume the CEO position whether through an unexpected event or a planned transition. Success or failure of a CEO transition is influenced by a host of obvious and non-obvious factors, many of them of a social/psychological nature. How these factors are managed can have an enormous impact on the performance and status of the organization.
Regulatory opinion
In an October 2009 release, the
United States Securities and Exchange Commission
The United States Securities and Exchange Commission (SEC) is an independent agencies of the United States government, independent agency of the United States federal government, created in the aftermath of the Wall Street crash of 1929. Its ...
effectively removed the ordinary business exclusion defense used by companies reluctant to disclose their CEO succession process to shareholders. The policy change allows for a new wave of corporate governance scrutiny, as regulators and shareholders increasingly focus on CEO succession practices.
Staff Bulletin (SLB 14E) announced that, in principle, the commission no longer allows companies to exclude shareholder proposals based on an argument that CEO
succession planning
Succession planning is a process and strategy for replacement planning or passing on leadership roles. It is used to identify and develop new, potential leaders who can move into leadership roles when they become vacant. Succession planning in ...
is an ordinary business operations matter. In reversing its position, the SEC acknowledged that poor CEO succession planning constitutes a significant business risk and raises a policy issue on the governance of the
corporation
A corporation or body corporate is an individual or a group of people, such as an association or company, that has been authorized by the State (polity), state to act as a single entity (a legal entity recognized by private and public law as ...
that transcends the day-to-day business of managing the workforce. The change indicates that regulators have reframed CEO succession as a risk management issue and placed its responsibility firmly in the boardroom. Succession planning responsibilities are redefined as “a key board function” and “a significant policy (and governance) issue … so that a company is not adversely affected by a vacancy in leadership.”
Succession Options
CEOs can be put in place from multiple options available to any organization, some of which are:
* Earmarking and training experienced and high value internal candidates for taking over the role of an outgoing CEO.
*
Promoters may prefer to elevate family members (co-promoters) as CEO, subject to
Board of Directors
A board of directors is a governing body that supervises the activities of a business, a nonprofit organization, or a government agency.
The powers, duties, and responsibilities of a board of directors are determined by government regulatio ...
approval and investor approval (in case of
listed firms).
* Hiring external CEOs from similar industries, culture and business expertise. This is done by outsourcing the work to
executive search firms.
CEO Succession in Family Businesses
As documented by recent research by Wharton Professor Henning Piezunka, Founder- and CEO succession in family businesses come with particular challenges.
The CEO is often unwilling to pass on the leadership of the family enterprise as doing so may also undermine the CEO's role in the family. Administering a successful transition despite these challenges requires careful moderation and active maintenance of the boundary between the business- and the family-sphere. An additional challenge can lie in the qualification of children for the role of the successor - requiring firm to engage in parallel search for potential candidates with and without family linkage.
See also
*
Outline of management
The following outline is provided as an overview of and topical guide to management:
Management (or managing) is the administration of organizations, whether they are a business, a nonprofit organization, or a government body. The following ou ...
Books
* Wackerle, F.W., (2001). ‘’The Right CEO: Straight Talk about Making Tough CEO Selection Decisions’’. New York:
John Wiley & Sons
John Wiley & Sons, Inc., commonly known as Wiley (), is an American Multinational corporation, multinational Publishing, publishing company that focuses on academic publishing and instructional materials. The company was founded in 1807 and pr ...
Articles
Pellet, J., (2009). “What’s Wrong with CEO Succession?” ''Chief Executive'', 240.* Charan, R., (2005). ‘’Ending the CEO Succession Crisis,’’ ''Harvard Business Review'', 83(2).
* Balloun, J., & McGill, J. (2005). “Succession Planning: A Critical Boardroom Imperative,” ''NACD Directors Monthly'', 29(9).
Dierickx, C., & McGill, J. (2007). “The Dark Side of CEO Succession,” ''Chief Executive'', 225.Dierickx, C., & Veneziano, J. (2008). “Three Keys to CEO Succession,” ''People & Strategy'', 31(2).Directorship Magazine (2009). “CEO Succession"The Conference Board (2010). Examining the impact of SEC guidance changes on CEO succession planning
References
{{DEFAULTSORT:Ceo Succession
Human resource management