How to fix the CEO succession problem | FT Working It

[Music] Chief executives are stepping down at record rates badly managed transitions have cost companies billions of dollars in Lost market value if you've got a good company with good product the next most important thing is who's in charge you may have been a great CEO 10 years ago are you going to cut it now businesses need stability so why are so few putting plans in place I'm Isabelle barck I host the FTS working it podcast and I write it newsletter about the workplace in this series I'll explore some of the most pressing issues around the

future of work and talk to senior leaders about how they are making work better the world is too Dynamic to keep up you have to do leadership development for everyone CEO turnover is at an all-time high and over the past few years we've seen many high-profile leaders leave and in some cas regain their top positions there are a couple reasons why we are getting so many new CEOs right now the first one is that during the pandemic lots of companies held on to their CEOs for perhaps longer than they might otherwise the second thing that

happened is since Russia invaded Ukraine the whole environment has changed for companies interest rates are higher costs are higher we've had killer inflation we've shifted from a sort of growth environment to a much more constrained environment so companies need different different kinds of leaders while some CEOs recognize when the time is right to plan a transition others need to be told to step down by their boards or are even abruptly removed between October 2023 and October this year more than 1,800 us CEOs announced their departure that's a 19% rise from the previous year although the

full reasons for exits aren't always disclosed retirement burnouts change ing roles underperformance and misconduct are often cited poorly managed CEO transitions in S&P 1500 companies have resulted in $1 trillion of lost market value annually with so much at stake why are some boards not getting this right to find out more about effective succession planning I went to my alma Mar St Katherine's College Oxford which is itself undergoing a leadership transition to meet Valerie mocker CEO of coaching firm wing women and an experienced board member and board adviser I know that whenever I read surveys of

board they always say CEO succession planning is one of the top priorities for us as a board do you think that actually happens in practice on a personal level you know that saving for retirement is important that doesn't mean that you actually save enough for when you're going to retire and in the same way as a sports we very easily get dragged into the daytoday business of what it means to be a board member so you meet and you discuss quarter reports but we certainly as boards in general don't spend enough time on succession planning

succession planning is a hard thing to talk about essentially you need to to talk to your CEO or CEOs and to the executive team and say so once you leave who could take over your job it's not an easy conversation what's the attitude of CEOs themselves to succession planning it is important that we have CEOs at the top who have come in knowing that at some point role would change or they might have to leave to make room for new people so you set the expectations right from the start yeah I would always ask this

question in in the interview process already about how long do you want to stay what do you want to do after you leave and what are you going to do in the time that you are here to train up people so that they can also follow in your footsteps once you leave they are also the CEOs who will be more collaborative more empowering and also more effective in leading their teams what happens when transition is forced a CEO resigns or there's ill health or there's a scandal how should boards react in those circumstances and how

quickly should they seek a new CEO in an Ideal World you want to find the right candidate and not the most readily available candidate that's why succession planning is so important and when we talk about succession planning ideally I like to talk about succession practice so so you need to have people in the organization who you give the opportunity to to practice taking over a role with more responsibility so that if you have a crisis you have people who are immediately able to step up and where you as the board know I trust these people

to take over the job even if it's just for a certain period of time it's never about the technical ability what we need to train them in is the kind of softer factors the human factors the understanding how to strategize and how to really navigate an organization how you also navigate people who have very big egos it's not enough to just be the Busy Bee who does really good work one of the reasons why I build wing woman is to make sure that we have a space where people learn what these rooms of powers look

like after speaking to Valerie I realized the value of having a continuing and wide ranging focus on succession planning not just for the person at the top but for all sorts of roles experience and practice is vital and that task of securing a diverse Talent pipeline is even harder boards are actually getting older Spencer Stewart research on UK boards shows that 90% of board members are now over 50 there are CEOs who stay on who everybody wonders when they will go but people don't want to push them out like Jamie Diamond at at JP Morgan

Chase or Larry thinkink at Black Rock who are both seen as sort of important big figures in business and so nobody's going to tell them to go but there is concern sometimes that they are not planning appropriately for the future Jamie Diamond for example has a reputation for having pushed out lots of people who could have been his successor and have gone on to run other Banks he would of course say that his new generation of potential successors is equally good and you know and the bank will be in great hands if and when he

decides to retire it is the single hardest thing for a company in many ways if if you've got a good company with good product and a business model that will throw off money the next most important thing is who's in charge and so you know I guess you could say the average tenure I think is now around 5 years for big public companies which means they don't screw it up all the time but that means one out of every five companies is changing CEOs every year Goldman Sachs the global Investment Bank has been working on

a method to help keep their leaders in place I went to the bank's office in London to find out more from its Chief learning Officer James Fulton and Leadership consult consult Kate liee who worked together to help leaders both inside and outside Goldman Sachs one of the Prime tools that every leader has every year is the tool of feedback and what we can do is make sure that that's more useful both to the leader themselves and to the organization and particularly at senior levels I think some Executives worry that it's political that it's the feedback

they receive isn't unbiased about performance but it's affected by Rivals who might uh yearn for that seat by people with opposing agendas if you ask most CEOs when's the last time you got feedback that genuinely made you stop in their tracks it will be years wow and is that their choice or because they feel they've got to the top or is it because they don't have time why why is that well if you think about it to give your bosses bosses boss serious feedback you got to be really vested in doing that haven't you why

would you do it it's a career suicide yes career ending so I think you should absolutely Bank on the fact the more senior you get the less people are going to tell you things that will be distasteful to you and you have to actively put processes in place which Goldman have to make sure that their Partners don't operate in an echo chamber Goldman Sachs has just over 46,000 employees of whom just 400 are Partners new partners are selected every 2 years and this sophisticated feedback program helps them to develop as Leaders so all the things

you've talked about suggest to me that a leader who is aware of this how they're changing how they could perform better has a better chance of staying in post for longer and not either because they leave or because they're ousted by a board who's not happy with the changes that would that be correct if you're listening to disconfirming feedback and feedback from people who aren't thrilled maybe with every part of your performance you have a chance to react to it whether it's to dispute it or change it or act on it are you likely to

drive better with with an accurate with an accurate dashboard yes you are and similar you're likely to lead better and and and more sustainably with accurate and regular feedback what would be a common things that Executives might need to look at I think one thing I see a lot is unintended consequences of their actions and words you know so they think they've done this in good faith and and this was their intention and they're genuinely baffled that it was interpreted like this or understood like that I think leaders underestimate how crisp the communication needs to

be and how repetitive it needs to be in order for people to understand what does the boss think does that play into not really understanding the impact they have on PE the impact of power and status on the people around them it it's quite common in in our experience that Executives don't realize how senior they are they don't realize how many people are are are looking at them so you even look at something or make a flip and comment about it you know people take that as a judgment so you can't do that anymore you

can't do a lot of things you can't do a lot of things and people need to get really smart that quickly we're all human we don't want to think about the waters closing over our heads and presumably that's magnified if you're a very powerful person who takes care of the psychological piece of preparing a CEO for transition oh honestly sorry it's such a hot button for me I just think most succession PL are about The Who and not about the how you know and I think there are three opportunities here that you know the companies

can really up the emotional choreography of how a CEO leaves you because they they failed to tune into they fa to ask the question what really matters to people here you know so they do the contra Act and the shares and all the legal stuff and the reason I think you get so many sort of spanners in the work at the end is you know people realize things that they've invested decades in are going to be trashed and he goes start acting out I think often they are disenchanted they're distracted or they're trying to dominate

it and say I want my version of my legacy messages to Prevail I had a real interesting chat with James and Kate one of the things that struck me was the importance they place on reflection and stepping back often leaders don't get a chance to do this they're so busy but making time and space for regular talks with trusted people can bring long-term incremental gains in the quality of their leadership and extend tenure just things go wrong people get sick people have trouble keeping their pants on you know things happen if you're a really great

business you probably do have three or four people who you think could fill some of the great roles in fact you ought to if if you're properly run business with a good board they should have that if you replace a long running CEO as with most managers you know the longer you do something the things you are good at you continue to do well the things you are not so good at build up and so by the time a long-standing CEO leaves whatever it was that CEO was slightly less good at is going to have

built up as a problem and so that's the other thing is the new CEO is going to have to deal with whatever didn't get dealt with before CEOs are very well rewarded and have Sky High status but it's lonely and hard at the top and some people burn out or have hidden mental health issues those pressures are enough to dissuade many talented people from going for the top job as a way to combat this some major companies have adopted the co- CEOs model this leadership structure creates equal heads of an organization the co-ceo model is

a great one for bringing in fresh talent in the younger generation because you can have a more seasoned CEO who maybe the board trusts with you know the experience he or she brings and also if you have shareholders or certain stakeholders they might not be as open to get someone younger in or someone who is maybe different to the typical type or who's outside of the industry it makes it so much easier for you as a board because especially when it comes to succession planning you don't worry as much about a person leaving and your

CEO leaving because there's always a second person who can steer the ship and who can continue running the organization if for whatever reason one of the CEOs is deciding to leave having people to share the burden with and having a spread of expertise sounds like a great solution for increasing CEO tenure so why aren't we seeing more Partnerships at the top perhaps because power is intoxicating and it can be hard to let go and let someone else share your platform and being a co-ceo is like any long-term partnership it comes with built-in disagreement and friction

that's something that will need to be carefully managed if it's going to survive longterm whatever leadership structure is being used getting succession right is important when it comes to succession planning overall I think most companies are doing a better job than they would have 10 15 years ago they're putting time and energy into it not only what do we plan for the CEO what do we do if our CFO gets recruited away and therefore he's not there as a possible successor so I think a properly run big public company at this point has spent quite

a bit of time doing succession planning they may not have done it well and I also think that the ones where you know it's a big personality in charge particularly ones where the founders are still there they're not as good at it because it's very hard to turn around and say Elon Musk like what's your succession plan so I think succession planning is better than it once was that doesn't means some companies don't screw it up pretty badly people get to the very top because they're single-minded and focused some of them are never going to

leave without being told to go I think there'll always be dramatic CEO exits with all the anger and damage that can cause to the leader to their team and to the business for boards keeping your existing senior people in position and Performing well for longer has to be the starting point for any succession plan