Transparent CEO Succession Plans Are Best
Communicating CEO succession plans to institutional investors does not have to be complicated. Generally speaking, transparency around your CEO succession process is a good thing. This should not be confused with providing investors with a play-by-play update (I would not recommend the latter). Here’s a high-level outline that may be useful for CEOs and Board members:
Define the Succession Process Timeline (share publicly): For example:
- “John Doe, CEO of Company XYZ will become Executive Chairman on January 1st 2019. XYZ will name a new CEO during Q4 2018.”
- We chose the word “during” as opposed to “by” because the latter is too open-ended and invites investors to repeatedly ask “when”. “During” provides a bit of air cover around the timing question. You can always move the date forward and name a CEO early. Don’t push the date back. Make sure to allow adequate time to run a thorough process.
- In terms of public disclosure – an earnings call is best. Address the topic in the prepared remarks. Anticipate investor questions and proactively address in the prepared remarks. Repeat your selection process in the prepared remarks each EPS call until a new CEO is named.
Define CEO Selection Criteria (share publicly): For example:
- “As CEO I will work with the Board to define the criteria by which XYZ will select its next CEO…”
- “Myself and the Board have defined the CEO selection criteria…”
- “We will consider both internal and external candidates…”
- “We have a deep bench of qualified executives and therefore will limit the selection process to internal candidates…”
- “We will select the best candidate that embodies our culture and core principles…”
- “Our next CEO will have a core competency around new product development…”
- “Our next CEO will have had a rich global operating experience including significant time operating across Asia…”
It Helps to Have A Strong Corporate Culture and Well-Defined Principles
Whatever the selection criteria and core CEO attributes may be, lay them out. Companies with strong corporate cultures and well-defined principles will have an easier time with CEO Succession and its external communication to investors. CEO Succession should not be an event-driven process but rather an operations-driven process where internal executives qualify themselves and audition for the next job every day.
We covered this topic in a recent CEORater Podcast: