Managing the CEO Transition Process

10/20/16

While selecting a new CEO certainly tops the list in challenges firm face, once chosen, a new issue emerges: How to transition from the old CEO to the new. In the most recent HR@Moore Survey of CHROs, we sought to explore this transition process. 

We asked CHROs to answer if their CEO had been named in the past five years, and if so we asked if they were named a COO/President prior to becoming CEO and if there had been a planned timeline for developing or evaluating the individual in that role. Sixty-six respondents indicated their CEO had been named in the past 5 years and of those 52% indicated that the individual was named COO/President prior to becoming CEO. Of these 76% indicated that there had been a planned time period in the role and the median of that time period was 12 months (ranging from 3 to 36 months). We also asked if the actual time period had been shorter, the same, or longer than the planned time period. Most indicated the schedule had been followed. Of the five that had a shorter actual time than planned, most indicated that the new candidate seemed ready early with only one noting that the candidate had received an external offer. Only one company took longer, and this was due to the recession delaying the incumbent CEO’s retirement. 

We also asked about the greatest challenges that emerged during this transition period. By far the most frequently mentioned challenge was with regard to the CEO handing over more responsibilities or simply defining the responsibilities of the COO and CEO. CHROs wrote things like “Clearly articulating roles and decision-making of COO and CEO responsibilities,” “Toughest for the executive leadership team to know who to take direction from,” and “The COO became increasingly anxious to become the decision maker given he would be living with the decisions for years to come.”

In the CEO succession transition, often there exists a time lag between the naming of the CEO and his/her actual assumption of the role and duties, so we asked about this as well. Just over 50% of the CHROs indicated that there was such a time lag and that the median was 5 months. Only 3 CHROs indicated that the actual time was shorter than the planned time and this was again because the board felt that the incoming CEO was ready (and perhaps a flight risk). Again, the biggest challenge faced during this transition dealt with the defining of duties and responsibilities for the incoming and outgoing CEO. Similarly, a number of individuals also noted anxiety within the organization and the executive team during this transition period. 

Finally, we also explored the current practice regarding board membership of the departing CEO. We asked if the exiting CEO remained on the board and if so, for how long. In 52% of the cases, the CEO did not remain on the board. In 14% of the cases, the CEO remained until the following annual meeting, 20% for 1 year, 3% for 2 years, 2% for 3 years, and 9% for 4 years or longer. In essence, there are a small minority of firms where CEOs transition to long-term board membership, but in most cases (86%) either immediately transition off the board, or transition off within a year.