The CEO is where it all begins. As the highest-ranking position at a company, they are responsible for managing the overall operations to ensure a company’s success, setting the company’s strategic direction, leading the management team and driving expansion and profitability.
Leading in such a position is a challenge that’s hard to fully prepare for — even for the most experienced executives. Wearing the hat of CEO comes with a tremendous amount of responsibility and requires a constant state of learning, mentoring and guidance — especially since the future of the company starts here.
For this reason, it’s crucial that boards have a well-defined process for CEO development and succession planning if a new CEO is needed due to planned or unplanned successions.
I discussed this very topic with two powerhouse women leaders: Venita Fields, who has been involved in private company board governance for 25 years (first as a private equity (PE) investor through three PE limited partnerships). She has also been an independent board director for 10 years. I also spoke to Gina Hoagland, chairman and principal of Collaborative Strategies Inc., who has been facilitating both fiduciary and advisory boards for over 20 years. She is former chair of Triad Bank and a former director of Huttig Building Products.
Here, they share what boards need to know when it comes to understanding how to navigate CEO development and succession planning, two of the most important jobs in private company board governance.
The Board’s Role in CEO Development
Hoagland’s more than 20 years of experience working with boards includes not only her tenure as chair of Triad Bank but serving as nom/gov chair of a public company board as well as operating as a member of several closely held firm boards. She currently serves on eight advisory boards of family businesses (four as lead director) and acts as a consultant to boards without serving on them, which includes performing tasks such as CEO and board evaluation, board recruiting, and board development and training.
Hoagland believes, “The board holds the CEO accountable for performance, supports him or her in developing the skills to prepare for the future, and mentors and coaches the CEO” to ensure success.
They also should have a thorough understanding of what it takes to lead the company. This can be done by being continuous learners and gleaning “expert advice and research from associations, utilizing research, having a healthy rotation of board members to introduce new ideas and consulting with CEOs serving on other boards to learn from their best practices,” she adds.
Ways Boards Can Help with CEO Development
Foster accountability. Fields believes, “The board’s role starts with asking the right questions about the CEO’s succession plan and holding the CEO accountable to the plan with periodic reviews and progress reports toward achieving that plan.”
This can be done by asking what it takes to lead the company — a question that should come up regularly with board members because of succession.
“Boards should consistently ask what it takes to lead a company at least annually, preferably twice a year, at board meetings or a board retreat,” says Fields. “Fostering accountability from the board level is essential to having a thriving organization.”
Plan for succession. Part of thinking strategically includes planning for succession. If leadership roles become vacant, developing new potential leaders as replacements is key for longevity.
“The board and the CEO share a joint responsibility to see that the company is sustainable beyond any one individual. Therefore, the CEO should be challenged to have a successor in case of a catastrophic event as well as a successor based on an orderly long-term timeline,” says Fields.
Planning for succession is a process that should ideally start years in advance. Many of the boards Hoagland serves on have included a phase of generational succession as part of her service to the board.
“The longer the runway, the more effective the process can be,” says Hoagland. “Boards I serve on have both an emergency succession plan and a long-term succession plan. If they don’t, I start suggesting that we undertake a process to get them.”
Identify possible successors. When the CEO is co-owner, there are still ways boards can help identify possible successors. “We usually lean on a committee — it might be nom/gov — or possibly form a special committee like a CEO search committee to explore options. How we go about this depends on how concentrated ownership is of the voting shares,” says Hoagland.
However, it is usually part of a larger succession process that often takes several years to effect.
Appoint a chief people officer. In Fields’ experience, one of the best approaches a board can use for succession planning is appointing a chief people officer, or CHRO, to be involved in the succession process with oversight from a board governance committee.
According to Fields, “The CHRO should develop a role profile for each senior executive leader, conduct a talent review and assess existing talent using box assessment tools, identify successors for the identified senior role profiles, assess successors against role profiles, create and execute development plans to identify development gaps (if any), and have standing process reviews to assess progress and report progress to the board via the governance committee.”
Mentor and coach. The board can also help a new CEO get acclimated once they are in the role through mentoring and coaching opportunities.
Says Hoagland, “If a successor is a family member, we might start a mentoring process whereby one of the board members coaches the next generation candidate. Sometimes, we run a process that considers outside candidates. If a new CEO is a nonfamily member, there is a formal onboarding process and goal-setting with an annual review.”
The board may also “suggest and support an outside, independent coach for the CEO,” says Fields. One way this can be done is by identifying a transition coach, whether that is an external coach, board member or another executive) and a committee member who can act as the go-to person for helping the new CEO get adjusted.
Such adjustments include the board’s “first-year expectations for the new CEO,” says Fields, which should “identify clear, realistic goals, measures and milestones and be reviewed with the new CEO during an initial meeting with the board chair.”
Boards can also help by identifying any key documents, plans and reports relevant for the CEO’s transition as well as “scheduling briefings with the executive team and senior management to review functional and programmatic areas, service lines and subsidiary organizations to ensure that problem areas, issues and concerns are shared with the new CEO. This should be done in an objective manner and should include proposed solutions,” says Fields.
Endorse the CEO publicly. It’s critical that the board and CEO are on the same wavelength. Boards can put practices in place to ensure a positive relationship happens.
Fields suggests this can be done through a public endorsement from the board. “An official introduction of the CEO to the organization and the community sets the stage for acceptance and support of the new leader. Make plans for introducing the CEO to stakeholders and influential colleagues. Identify which board member or executive team member is best positioned to make the introductions,” says Venita.
Have an alignment process. Hoagland has a tried-and-true process for ensuring alignment between the CEO and the board.
“For over a dozen years, I have implemented a key objective alignment process for one of the boards I work with to ensure that the CEO and the board are in alignment and that the communication pipeline is clear and flowing. Typically, if we have a nonexecutive chair, the chair has regular alignment meetings with the CEO. If the CEO and chair are the same person, the board will work with the CEO on annual planning and goal-setting with quarterly check-ins.”
Identify the necessary key skills. Another thing boards can do is help identify the skills, capabilities and experience needed by the CEO to achieve its key objectives. “It is important that the CEO attracts, hires and retains a capable senior leadership team. This is the top skill required of any CEO,” says Fields.
Keep noses in and fingers out. It’s important to note that the board is an extension of the CEO’s management and support team. To ensure the CEO’s success, boards must take appropriate measures to ensure transparency and a regular cadence of open and honest exchange of information. But, most importantly, they must keep their fingers out.
Private company directors must also be diligent about what gets placed on meeting agendas.
“Private businesses, especially those that are family-owned, carry myriad complexities. The four rooms are essential to best practices in the boardroom. This means that family matters are dealt with in the family room, shareholder matters in the shareholder room, management matters in the management room and board matters in the boardroom. By putting the right topics on the agenda for board discussion, we avoid getting pulled into who is using the summer cottage or why the delivery driver in Duluth was fired,” says Hoagland.
Lisa Wicker Ph.D. is a member of the board of advisors of STOPit, president and CEO of Linwick & Associates LLC and CEO and publisher of Career Mastered Magazine.