May, 2013 CEO SUCCESSION & TRANSITION AN INTRODUCTION
An alarming number of large Companies have had ceo changes in the past year
Recent Headlines indicate that performance aloneis not the only factor playing a role in CEO failures Board Clashed With CEO Over Strategy CEO Unexpectedly Resigns Allegations of Wrong-Doing CEO Steps Down Amid Lower Than Expected Profits CEO Fired After Less Than 6 Months on the Job CEO Came Under Fire Over Acquisitions Strategy CEO Pushed Aside in Surprise Reorganization CEO Resigns in Shake-Up
The board’s crucial responsibility The performance of every organization is hugely impacted by the capability of its chief executives, for better or for worse A poor decision is enormously costly A good decision pays dividends to the company for years
Even when selection is made with utmost diligence, the success of the new CEO is determined by more than fit and requisite skills. A well planned transition is critical to a smooth transfer of leadership, maintaining business momentum and meeting stakeholder expectations. Why CEO transition matters
Persistently high CEO turnover creates a significant market opportunity for CEO transition support services Global CEO Turnover Trend1 Source: Booz Allen Hamilton, CEO Succession Survey of 2,500 largest public companies globally, 2006-2010.
Additional TRANSITION FACTORS that add complexity New CEOs have a very short time to prove themselves Little clarity on the role of the outgoing CEO Boards recognize the importance but don’t provide much support In your most recent CEO transition, did your board / current CEO / company use resources to help the transition? How long does a CEO have to deliver on expectations to be seen as successful? What is the best role for the outgoing CEO? Overlap period to assist transition 50% No role, exit quickly 50% Yes 50% No 50% n = 246 Source: RHR International LLP and Corporate Board 2011 Survey
FAILED CEO TRANSITIONS ARE FINANCIALLY COSTLY… Share prices can decline sharply in response to unplanned CEO turnover CEO replacement costs are considerable2 Average Potential Replacement Costs by Type Impact of CEO Turnover1 Total cost of failure >$57M Total cost of failure >$24M $M • Booz Allen Hamilton, CEO Succession Survey of 2,500 largest public companies globally, 2006-2010. • Stoddard & Wycoff, 2009. The Right Leader.
…AND DRIVE SIGNIFICANT INDIRECT COSTS AS WELL • More difficulty recruiting at the CEO and senior levels • Difficulty attracting top quality Board Members • Competitor inroads while the company is internally distracted • Investor, shareholder and customer alarm over clarity of direction • Disruption of business momentum • Decreased senior leader and employee engagement & morale • Board anxiety Other risks Identified by Board Members Sources: RHR International LLP and Chief Executive Magazine 2009 Survey Stoddard & Wycoff, 2009 The Right Leader
There are many reasons for failed CEO transitions • Strategic mis-alignment • Ineffective senior team • Loss of key talent • Inability to manage key relationships • Lack of effective execution • Credibility loss with shareholders • Ineffective or insufficient impact as a leader Source: RHR International LLP & Corporate Board CEO Integration Survey 2011
CEO and BOD expectations aligned Business focus and momentum maintained Direction/strategy clear Appropriate pace of change Continuity of values and cultural aspects Key stakeholders confident in leader/direction Important relationships established Key stakeholder support system in place Shared vision with leadership and company Key talent decisions made in a timely manner THERE IS A SHARPCONTRASTBETWEEN SUCCESSFUL VERSUS UNSUCCESSFUL TRANSITIONS ON A NUMBER OF DIMENSIONS Successful Unsuccessful • Major decisions delayed • Key sources of information ignored • Personal development issues not addressed • Critical people issues are perpetuated • Organizational unrest • Loss of important and top talent • Cultural missteps • Disaffected leaders/dysfunctional senior team • Failure to establish alignment with the board • External reputation of the company is tarnished
Why CEO succession is so difficult • Board alignment, clarity and focus around CEO successor requirements is important and more difficult to achieve than most expect • Expectations and behaviors of contenders for the role as well as the outgoing CEO can muddy the waters • Unrealistic expectations of an outsider ‘savior’ is tempting, but as much a pitfall as a solution • Board members’ skills in evaluating candidates varies widely • The mere discussion of CEO transitions uncorks a host of social, psychological and political issues that the players may lack the skills and willingness to address Source: Chief Executive magazine/RHR International CEO Succession Survey 2010
An effective CEO succession process achieves mission critical objectives • Aligning the board on the company’s vision, strategy, and challenges • Ensuring that an effective CEO is in place and that future candidates are inthe pipeline • Minimizing risks associated with the transition through a well-managed process • Increasing capacity for the company to take advantage of the opportunities associated with CEO transitions • Generating stakeholder consensus that succession is fair, well-executed, and results in a good decision
THE RHR CEO Transition MODEL: AN INTEGRATED APPROACH Through research and experience, RHR has found that CEO transitions have three significant dimensions - Individual Transition, Organizational Effectiveness, and Senior Team Effectiveness – each demanding a thorough, well planned approach. The RHR Transition model is based on addressing and integrating all three of these dimensions.
CEO transitions have three significant dimensions,each demanding a thorough, well planned approach IndividualTransition • Leadership impact and cultural fit • Board relations and expectations • Clear, compelling message • Experience gaps • Relationships • Roles of key stakeholders • Accelerated development OBJECTIVE: Create a plan to assist the CEO in developing a deep understanding of the role requirements and expectations and accelerate his/her personal transition. Including establishment or strengthening of critical relationships with key stakeholders.
CEO transitions have three significant dimensions,each demanding a thorough, well planned approach OrganizationalEffectiveness • Current state of the business • Competitive dynamics • Strategic Clarity • Culture and structure consistent with strategy • Level of engagement • Capability to deliver on the strategy OBJECTIVE: Develop clarity of strategic priorities and assess the organizational processes and aspects of the structure that will accelerate progress toward the business objectives. Identify changes to the organizational culture that will support the strategic direction .
CEO transitions have three significant dimensions,each demanding a thorough, well planned approach SeniorTeamEffectiveness • The right talent with the skills to execute the strategy • Clearly stated purpose • Agreement on processes • Alignment on enterprise-wide priorities • Clear accountabilities are established OBJECTIVE: Ensure that the organization has the necessary, complementary talent in the key leadership roles and that those individuals are aligned on the key business goals. .
A successful transition addresses all three domains in an integrated process • Performance expectations are explicit • Strategic alignment with the Board • Leadership style demonstrated and embraced • Development and learning gaps identified & addressed • Key messages landed • Relationships established • Key advisors & internal resources engaged IndividualTransition OrganizationalEffectiveness Senior Team Effectiveness • Cohesive team with clear understanding of purpose • Alignment around goals, priorities, and key business strategies • Roles, responsibilities and accountabilities established • Shared sense of ownership for results • Complementary skills • Required restructuring initiated • Important cultural elements affirmed • Change initiatives and reorgs yielding positive impact with limited disruption • Business strategy and momentum maintained/growing • Key positions filled withtop talent Successful CEO Transition
Research and experience also indicate that events in CEO Transitions occur in predictable stages Preparation Introduction Taking Charge Adjustment • Time for the successful candidate and the Board to prepare for the transition • Execution of the communication strategy • Offering the organization a preview of the agenda going forward • Time for the new CEO to make the important contacts and offer reassurance and establish confidence • Time during which the new CEO must maintain the momentum of the business while he/she becomes familiar with the people, issues and problems that must be addressed. • Time for dealing with the people, organizational and strategic issues. • CEO recalibrates and adjusts the hypotheses that were developed earlier • Major personnel and structural issues are dealt with in this time frame D-day -1 month Month 1 Q1 Q2 and beyond
WE WORK CLOSELY WITH THE CEO TO DEVELOP A TRANSITION PROCESS THAT is tailored to SPECIFIC NEEDS AND CIRCUMSTANCES of the individual and the organization Conduct Situation Analysis Execute Plan Identify Potential Accelerators for Successful Integration Establish Transition Plan Objectives and Actions
Key questions and elements to building and executing the transition plan Conduct Situation Analysis Identify Potential Accelerators for Successful Integration Establish Transition Plan Objectives and Actions Execute Plan • What are the key issues to address to ensure Board alignment? • What is the current state of the business? • Are there any major imperatives / burning platforms? • What is the status of the senior team? • What skills and experiences does that CEO bring that will be particularly helpful? What are the gaps? • Is the new CEO an internal or external successor? Implications for transition? • Are there specific change initiatives that need to be considered? • Board engagement • Strategic clarity • Existing change agents • CEO style • Accessible advisors • Senior team alignment on business priorities • Board relationship building • Senior team assessment and changes • Organization plan • CEO / cultural acclimation • Communication strategy • Strategy evaluation and changes • Determine mentor, coaching and other resources • Develop stakeholder communication protocol • 30-day action plan • Assign / connect resources • Launch the senior team • Enact strategy and organization initiatives • Regular progress reviews and course corrections • Communication with key stakeholders
sample coo transition project plan New CEO Selected Preparation Introduction Taking Charge Adjustment INDIVIDUAL Enlist advisors Identify gaps & fit vis-à-vis role requirements Implement plans Pulse check Create plan to address gaps Key individual & small groups Communication plan executed Craft message Site visits Clarify BOD expectations & performance criteria Check alignment Make contact Identify critical relationships SENIOR TEAM Alignment meetings Offsite Measure alignment, progress & adjust SLT assessment : evaluate talent, identify gaps Identify needed changes Execute personnel changes ORGANIZATION Measure impact Execute change plans Assess culture Identify what to keep & what to change Evaluate strategy Establish business objectives Implement plans D-Day – Month 1 Month 1 Q1 Q2 and beyond
A VARIETY OF RHR AND CEO TRANSITION-SPECIFIC TOOLS CAN BE DEPLOYED IN THESE ASSIGNMENTS Key Tools Experienced RHR consultants CEO Mentors Practice leaders Outside consultant recommendations / referrals RHRResources • Winning Formula assessment • Senior Team assessment and development • Board assessment • Board consultation regarding their role in the transition • Individual coaching • CEO Mentor needs assessment • Culture and organization assessments • Individual assessment and feedback • Personal development planning
THE DESIRED OUTCOMES OF A WELL PLANNED TRANSITION • Alignment of key constituents on strategic issues • Confidence of key stakeholders in the new leader • Leadership team is established • CEO support resources in place • Early milestone accomplishments • Organization alignment and engagement • Sustained organizational performance
RHR already has a deep body of experience and skills to support the new CEO transition offering • Practitioner survey results • We have a good depth of experience in this area – 70% of responding consultantshave had experience with at least one CEO transition engagement (average of 3 projects per consultant). • Our collective experience includes both internal and external CEO transitions (67% and 33%, respectively) • CEO transition workhas also served as our entrée point for a number of new clients (consultants’ collective work comprised of 42% new clients and 58% existing clients).
No other competitor has an equally strong offering across all three dimensions
RHR is distinctively qualified to help CEOs transition successfully • Uniquely attuned to the myriad elements of this complex and dynamic process • Fully versed in virtually all aspects of CEO transitions • Deeply skilled in managing the subtle, but important dynamics that can derail the best CEOs • Able to anticipate and help you manage issues before they are problematic • An unmatched set of services to be able to address all the dimensions of this complex issue We bring deep skills and an independent perspectivebacked up by experience with hundreds of CEO transitions
Ceo succession and transition THANK YOU