Every company should be thinking of who would fill its top post if it becomes vacant tomorrow, regardless of age, time on the job or the career aspirations of its CEO. The sudden loss of a leader may lead to serious consequences. With the “longevity” of CEOs dropping in the past decades, this is an ever more important topic. In short: underestimating CEO Succession Planning exposes companies to unnecessary risks.
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When the need to replace a CEO becomes the topic of the day, the company should know the answer to one question: should we promote someone to the post internally or should we look for the new CEO externally? The seemingly simple question involves far-reaching consequences. What are the advantages and risks of both the internal and external selection of a candidate for CEO, and what should we know so as to make the best possible decision?
Internal vs. external CEO succession candidates
It is hardly demanding to list the advantages of internal succession planning: managers who are part of the company know this well and fit in. These candidates understand the strategic direction the company has set up, the industry it works in, the context and the environment, and foster a feeling of community. For an individual from within the organisation the motivation may be their own personal development and building their own career.
Apart from strengths, internal selection comes with some drawbacks: internal managers are linked to the organisation in several ways. This mostly concerns individual processes, interpersonal relationships and ties. Sometimes it may be hard for them to find a new approach to old problems. If the succession plan is not transparent, open, and properly communicated, the promotion of one over another may harm the organisation.
A CEO from an external environment is also accompanied by positives. The traditional argument says that gaining a CEO from another company or even another industry may offer a new perspective, experience and innovation to the management team. The position of the new CEO as an outsider of sorts appears to be an advantage, too. Non-existent ties to employees and traditions make it easier for them to introduce new ideas and increase the willingness and courage to try a new strategic direction. Having some distance from the people there also unties their hands in deciding on personnel and financial issues.
On the other hand, hiring an external candidate comes with costs – literally. It is an investment into a vast search that requires time and energy. The goal is always clear: to choose a candidate who best fits the organisation. In the event of a sudden loss of a leader, the time available to search and select a new candidate may slow the company down temporarily, or even bring a setback about. It is different when the replacement of the CEO is planned in the long term and the organisation gradually prepares for it.
How to minimise the risks in selecting an external candidate
Each candidate coming to the organisation from the external environment, whether the organisation handles the process on its own or through an independent Executive Search advisor, requires the organisation to get to know and vet them. Hundreds of stories have confirmed that this step is necessary, because it is nearly impossible for organisations to recover from mistakes and wrong personnel decisions. Executive Background Checks help minimise the chance of the selected candidate not fitting the position. This identifies potential risks and threats. It can assess the candidate efficiently and reliably through face-to-face interviews, vetting, the gathering of references, searching in various databases or using automated search systems and background checks.
It is a discreet process that serves to check the veracity and complexity of what the candidate presents about themselves, making sure they did not omit anything or keep anything secret on purpose. The candidate’s digital trace is analysed within the process. This involves their activities on the internet and social networks, checking information from the media and investigating the credibility, reputation, conflicts of interests and the overall background of the candidate in various registers.
One way or another, the selection of a new leader is an important decision that cannot be taken lightly. Demands on leaders and managers have never been more taxing than now. Decisions need to be made based on the unique balance of timing, finances, industry and availability. That is the only way to find candidates who possess a unique combination of experience in creating strategy and management, so that they are a guarantee of implementing significant changes in an organisation.
Martin Krekáč is chairman & founding partner at Jenewein Group.