Navigating CEO Transitions: How Board Engagement Shapes Leadership Success – Corporate Governance – Corporate/Commercial Law
Leadership changes have the potential to significantly impact a
company’s trajectory. Research indicates that more than 50
percent of executives fail in the first 18 months in their new
role, potentially putting at risk the company’s strategy,
operational stability and stakeholder confidence.1 A key
factor contributing to the success or failure of any CEO transition
is the board’s level of engagement with the CEO after the
hiring decision is made. Surprisingly, while many board members are
typically highly involved in the CEO selection process, research
indicates that most board members often underinvest time spent with
the new CEO. Instead, board members often choose to place their
trust in the new CEO’s capabilities and capacity to lead
without putting in place a formal transition plan, support team or
adequate performance tracking.
Early on, the board can expect the new CEO to engage in a
thorough business review. He or she will likely look to internal
leaders and influencers to bringing him or her up to speed on the
business. In addition, new CEOs can benefit from the advice and
leverage provided by outside advisors to offer perspective,
accelerate learning and highlight issues that may be uncomfortable
for internal leaders to address directly. Outside advisors can also
help identify misalignments, uncover root causes, reconcile
differences, and be mobilized to support specialized tasks forces
and change management initiatives.
What we have observed guiding successful CEO transitions and
their implications
An Actionable Corporate Strategy – Six Components
Following the business plan review, the board should work with
the CEO to develop an appropriate level of visibility into the
outcomes and milestones the CEO will use to drive the business
forward. The newly appointed CEO should deliver a clear, actionable
corporate strategy within the first 100 days, supported by
operational and financial key performance indicators (KPIs) that he
or she will use both to drive the business forward and hold the
management team accountable. While desired outcomes may vary based
on the CEO’s vision and the specific near-term needs of the
business, the following six areas should be addressed within the
corporate strategy.
Growth Trajectory: The CEO should present a
clear vision for the company’s growth over the next three to
five years, identifying key market opportunities, competitive
position and revenue targets. Growth initiatives may be organic,
inorganic or may come through capex and other investments. The CEO
should convey to the board his or her top priorities for driving
growth as well as the required expected investment. Board members
will want to assess the feasibility of the growth projections,
ensuring they align with the company’s long-term goals and
current market conditions.
Operating Model: The company’s operations
may need to evolve to support the company’s growth strategy.
The CEO should propose any necessary changes to the structure,
processes and KPIs. Considerations for the board include evaluating
the scalability of the proposed model, its cost efficiency, and how
it positions the company to outperform competitors while
maintaining operational agility.
Talent: An assessment of the current leadership
team is useful to identify any talent gaps or succession risks, as
well as to ensure that the CEO has the executive team that he or
she needs. Proposals for attracting, retaining and developing
top-tier executives should be highlighted, along with strategies
for fostering a leadership culture that aligns with the
company’s future needs.
Compensation Structure: A discussion on the
management team’s compensation structure should clearly lay out
how compensation incentives align with individual performance goals
and desired outcomes. Compensation structure should be reviewed at
both the executive level and for all critical roles.
Recommendations may include changes in salary structures, bonuses,
equity plans and long-term incentives. The board should ensure that
the compensation strategy incentivizes the right behaviors, drives
performance and aligns to shareholder interests by reflecting a
competitive market rate.
Technology Enablers: Today, technology plays a
critical role in driving efficiency, innovation and growth. The CEO
should highlight existing gaps in the company’s tech
infrastructure and propose investments in key areas like
automation, data analytics or digital transformation. The board
will need to assess the balance between investment costs and the
anticipated return, ensuring the tech strategy aligns with the
company’s broader objectives.
Risk: Lastly, the CEO should provide a
comprehensive analysis of the key risks facing the company —
both internal and external — and propose mitigation
strategies. This enterprise risk assessment should include
financial, operational, market, data, regulatory and compliance
risks. The board should evaluate whether the risk management plan
is properly designed to protect the company’s assets and
reputation at the right cost to the business.
A thorough business review will set the tone for the new CEO and
result in a substantiated strategy that he or she can stand behind.
Moreover, the board will benefit from increased transparency into
the business with actionable KPIs to track performance. The board
should keep in mind that CEO selection does not guarantee board
alignment on priorities and direction. Therefore, it is critical
the board know where alignment and misalignment exist and the
potential impact to the overall CEO leadership transition plan.
CEOs often turn to outside, action-oriented advisors like
A&M to get an objective view of the business and quickly
develop a go-forward plan that is supported by the board.
Footnote
1. Mike Ettore, “Why Most New Executives Fail
– And Four Things Companies Can Do About It,”
Forbes.com, March 13, 2020,
Originally Published by 15 October 2024
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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