“Never measure the tallest of the pygmies.”
This advice comes from George Davis, Boston Managing Partner for the national search firm Egon Zehnder, commenting on the appropriate way to search for a CEO following a corporate merger. Since CEOs should be selected based upon whether they fulfill future requirements for skill set and experience, it is possible that the existing CEOs and other C level executives of both constituent companies in a merger are not “tall enough” to meet that standard; consideration should be given to looking to an outside player. One must avoid the “brokered deal” where, for example, one senior position is given to the CEO of one constituent, another C level position to the CEO of the other constituent.
Davis spoke at the February 12th meeting of the National Association of Corporate Directors/New England, which meeting focused on the role of directors in CEO succession. Other major takeaways:
- It is appropriate for the board to ask of a CEO: “what do you want from your board of directors that you are not getting?” (Pamela Godwin, President of Change Partners of Philadelphia and board member of Unum Group [NYSE]).
- Boards should be proactive in driving CEO succession planning, and one device to consider is an educational/training session for the board, during a retreat, where lawyers or HR professionals discuss the fiduciary role of directors in planning succession.
- The job description for a CEO should be updated annually to reflect strategic changes in a company’s business which may alter the criteria for the best choice of CEO (William Messenger, Director at ArQule, Inc.).
Since changing times may require changing strategy, to be implemented by a new CEO from outside the organization, it is essential prior to the arrival of that new CEO for the board to make sure that the executive ranks are educated as to these new challenges and the appropriateness of the changes that a new CEO may bring (Ellen Zane, CEO Emeritus of Tufts Medical Center).
Over the last five years, the average tenure of a CEO (based on a survey of many public and private companies) has shrunk from 7.3 years to 4.4 years. Thus, focus on CEO succession is becoming more important. Half the members of boards surveyed believe that their succession planning is inadequate; only 33% have a well-documented succession planning process.
The panel also agreed on the need to train internal people as possible CEO successors. Although internal executives may not make it to CEO, a plan to rotate them through different functions and (if they are board members themselves) different committees should be presented to them as building their own professional skills, and not as a step in a “horse race” to the top. The panel also agreed that CEO selection is the task of the board, but that filling slots below the CEO level is the role of the CEO, with the board asking appropriate questions to make sure that the task is being handled properly.