A successful onboarding of the chief executive depends on communication, shareholder relationships and effective coaching.
The CEO search committee’s work is done. You found the right new CEO for your company. But is your entire board ready for the serious work that begins now?
Have they considered:
- The role each board member will play?
- The role the previous CEO will play?
- How the board will lead a successful transition?
- How the board will support the new CEO?
- Whether the board chair is ready?
As a board chair, I’ve had the experience of leading two unplanned CEO transitions, one for a family-held business and the other for a private equity-owned company. I’ve also had the pleasure of being part of a CEO search committee for a planned CEO exit due to retirement. From my perspective, planned is always better, though not always possible.
For either type, boards must be thoroughly prepared for the transition. That means the transition planning should begin during the latter parts of the search phase. Here are several questions and topics that boards should consider in developing a transition plan.
Internal or external hire?
In either type of transition, the two most important questions are:
- Is there an internal candidate?
- Is the internal candidate an interim CEO or the ideal CEO?
Obviously, transitioning to a new CEO is much easier and faster if there’s an internal candidate and when the event is planned.
Assuming the candidate is external, the retiring CEO or board chair (for unplanned CEO exits) needs to be ready for conversations with the entire C-suite. Those conversations include:
- “Why wasn’t I selected?”
- “Why is the incoming CEO qualified?” (This is especially important if the board has hired a CEO from a different industry or one that is less experienced than other executives.)
A shareholder (or family chair) as well as an independent director may also need to be in these conversations, depending on the type of company and the relationships with members of the C-suite. It’s important for the executive team to know they are supported by shareholders and board members upon their boss’s retirement.
The board has to balance the need for stability during a transition while not limiting the new CEO’s ability to build his or her own C-suite team. Retention bonuses are a useful tool. But, in implementing them, the board must consider the amount, length and variability based on the impact of each C-suite member. Not all of the CEO’s direct reports need to be treated equally. Tenure, bottom line/organizational impact, leadership influence and recent personal performance all must be considered when determining retention bonuses.
Who leads the transition process?
In a planned transition, the current CEO is the key to successfully onboarding the new CEO. This should be an essential part of the CEO’s exit plan. In an unplanned transition, there’s great urgency to get the CEO up to speed because of problems that caused the CEO termination. Shareholders want to get those problems fixed as quickly as possible.
Four key steps in transition
Communications. Thorough communications plans will have to be in place for executives, employees, customers, suppliers, professional service providers, lenders, the community and other stakeholders. As the board develops the transition plan, directors will want to debate the timing and content of the communications of the retirement. If it’s a termination, the board will also need to determine the messaging. I highly recommend involving the chief legal counsel or external counsel in preparing the messaging. In either case, every board member and every shareholder must be committed to following the messaging, no matter what audience is hearing it.
As for timing, it’s best to begin with executives, then employees, then immediately begin informing customers. Timing for lenders and the community depends on the relationships of the CEO, shareholder and company to those constituencies.
Functional responsibilities. This is an opportunity to split internal vs. external onboarding. Is there an opportunity to ease the new CEO into the role? For example, if the company has a strong COO, the new CEO can devote a large portion of his or her early tenure to meeting customers and key suppliers. The COO can continue to focus on internal operations and manufacturing. Once the new CEO has begun to establish customer relationships, then time can be devoted to deeply understanding internal operations. The most effective plan is based on the type of company (service or manufacturing), its financial stability (solid or bleeding) and the strength of its executives.
The departing CEO can be an enormous help in the external transition. They can personally contact key customers and pave the way for the new CEO with the right conversations. The exiting CEO should also arrange and attend “top to tops.” In the case of an unplanned CEO exit, the chief revenue officer plays a pivotal role in helping the new CEO begin to build relationships with key customers.
Board/shareholder relationships. For family-held companies, significant shareholders are usually part of the CEO interview process, as they are often board members. Family shareholder involvement in interviews depends on the number of family owners, their day-to-day business involvement and their governance involvement. The retiring CEO can also be helpful in guiding the new CEO on how best to build shareholder/family relationships. Elements of the transition plan include effective ongoing communications with shareholders, potential “watch outs” and pitfalls, family relationship history, shareholder priorities and reputational concerns.
For private equity companies, all key shareholders will be involved in the CEO interview process. Once hired, it’s incumbent on the CEO to wisely invest time to build relationships with both formal and informal leaders of the private equity firm(s).
Board and external coaching for the new CEO. If the board has hired a seasoned veteran as the new CEO, an external coach should not be necessary. A good chair or lead independent director can be a useful guide and sounding board. But if the new CEO is relatively inexperienced or they are serving in their first stand-alone CEO role, then both types of coaching are essential.
The new CEO must rely on the chair, lead director or previous CEO to quickly get up to speed as the organization’s leader. An external coach provides the CEO with a different perspective. As a very young, first-time CEO, my coach was invaluable. He helped me to identify and navigate several tricky board relationships. He guided me toward curbing a natural tendency to want to immediately impact everything. And he helped me prioritize for impact, a discipline I still use today.
Special considerations in planned CEO transitions
As part of the transition process, boards must think about these questions:
- Should the former CEO remain on the board? If so, for how long? If not, what are the implications?
- What if he or she was the chair?
- What is the timing of the transition? When does the board want the former CEO fully exited? When does the former CEO want to be exited?
I received some tremendously useful advice in my first CEO role: “After 3 months, everything is your problem. You own it all.” Today, the advice I give is: “New CEO, everything is yours after six weeks!”
Lynn Nowicki Clarke is a director of Basic American Foods, A. Duie Pyle Inc. and Diana’s Bananas, and lead director for Vollrath Manufacturing Company. She is also operating partner for Jelly Belly Sparkling Waters and was NACD’s 2021-22 Private Company Director of the Year.