The quandary and the convenient intruder
Working as a company secretary both in a professional services and in-house context over the past decade has provided me with the opportunity to observe a wide range of board-executive relationships from differing perspectives. I’ve seen them work together cohesively and effectively, and I’ve seen them spectacularly fray and fall apart, which coincidentally is when specialist support is brought in to correct an organisation’s trajectory. We can assume in the normal course that the two work together well and have the best intentions in mind, transitioning in an orderly way between leaders as time progresses; leaving us with the fringe cases that are the focus of this article.
In my experience, boards of many varieties struggle with the succession planning as well as the key person risk attached to their direct reports, most critically in the case of the CEO. This is especially so when the latter individual is a founder or someone who is the source of an organisation’s intellectual property; without whom the enterprise may ultimately fail in the short run - a typical case being tech start ups.
When I run governance workshops with clients, I like to show them the 2014 documentary Print The Legend, which contrasts the startup journeys of two competing desktop 3D printer manufacturing firms in the U.S. If you haven't seen it, you can find it on Netflix here and it is available on other streaming services too.
You might be asking yourself “what does a documentary about the 3D printer market have to do with succession planning?”, and the answer to that is well, everything, if you watch closely enough and examine what happens from a strategic mindset. What is even more interesting about these two competing firms actually transpires in the events that follow the conclusion of the film; namely, a significant deviation in their commercial journeys as a consequence of that succession: one has become a global force in the desktop 3D printer market, and the other - much like the Icarus of legend - descended into a miserable, likely terminal death spiral. I won't share any spoilers here but it is definitely worth watching for any technology or management aficionado.
De-risking your personnel: an unexpected journey
The challenge with succession planning or de-risking in this domain is primarily an emotional one, and involves fighting hubris head-on. It requires individuals to relinquish the psychological and functional safety of control, and to rewire their brains to accept (a) the importance of delegation, (b) the clash of ideas and (c) the discomfort of stretch as norms. These are thematic extensions of the recommendations made in my previous Insights article “To read, and to absorb“ which can be found here, and as you can imagine there is no single right answer given companies’ circumstances and key management personnel skills and personalities’ may substantially differ. Therefore, each enterprise should ideally begin by incorporating key person risk into their risk appetite discussions if they haven’t already, so that their board can ultimately determine to what extent it is willing to accept the loss of such individuals, including any secondary effects to the business in the event that happens. By exploring those scenarios, it should become readily apparent to directors just how significant an impact such a loss might cause, and provide a foundation for conversations between the board and their CEO as to how to mitigate it. Nowadays a high-performing board will be considering the implication of expiring CEO terms alongside their own succession planning - deliberately and systematically preparing for those changes at least a year ahead of time, if not more. This concerted focus is occurring in practice: the The 2022-2023 Australian Institute of Company Directors Not-for-Profit Governance & Performance Study revealed that workforce planning and enhancing board composition were top priorities for organisations and boards over the next twelve months respectively.
For some organisations, succession discussions will be challenging, and require a dissemination of know-how and/or the assignment of key stakeholder relationships amongst team members that may have otherwise been jealously guarded, but it is really no different in reality than investing in your team’s learning, nurturing their development, deepening your stakeholder relationships and in so doing, setting the foundations for the next generation of leaders. And the best part? Its a practice that is mostly frictionless when done right. When you consider that contemporary employee exit research concludes that people will leave companies irrespective of how good their managers are if they cannot see any tangible development opportunities in their future, it would be foolhardy not to reward their commitment with the opportunity to amplify it in the future through mentoring, shadowing, upskilling or promotion where circumstances permit it.
There will, unfortunately, be situations where a board may need to take decisive action to remove or replace key management personnel in circumstances where such a change had not been anticipated. There are two high profile charitable institutions in Victoria who ran into this particular issue during the 2022 Federal election when their CEO’s had apparently endorsed the then-Treasurer Josh Frydenberg by appearing on flyers endorsing him for re-election; resulting in one organisation’s CEO being immediately stood down and the other remaining in place. While the optics over both are murky, they provide polar opposite responses to the same quandary, namely, how boards can respond to instances in the future where their executives' tenures may very suddenly be in jeopardy.
Steadying the helm - turning potential crises into opportunities
The first option a board could consider in such instances is to promote a member of the C-suite to an acting or permanent CEO role. This may be an intuitive response for directors as it maintains continuity of internal and external relationships and allows for boards to work closely with their C-suite team through a period of instability with the benefit of access to an existing, trusted resource. It does, however, require an organisation to invest in these individuals’ development so they (as well as their direct reports) are prepared accordingly when someone needs to step up into the CEO position - for example, by rotating them through acting CEO opportunities during periods of leave, appointing them to oversee significant projects, and so on. Otherwise, a board may discover that their intended appointee may not have the capacity or confidence to assume these responsibilities; running their succession strategy aground.
The second is to have a board member step down and take up an acting CEO position until a successor is found, which is what eventually transpired with Guide Dogs Victoria following the departure of their CEO Karen Hayes in May 2022. Hayes’ departure was only one of a swathe of senior executive exits, substantially depriving the Guide Dogs Victoria board of access to option one, so their then-Chairperson Iain Edwards resigned and took up the Interim CEO position which he remained in at the time of writing this article (note: he departed on 14 April 2023 and was replaced by incoming CEO Nicky Long). This is a less-than-ideal solution as it requires a strategically-oriented individual to conceptually separate their thinking from organisational stewardship to executive management, engage with the C-suite as a leader and colleague while simultaneously maintaining a dialogue with their former peers to whom they now functionally report. That cognitive separation and realignment exercise requires a significant mental effort on the part of the appointee and for what its worth, I am skeptical as to whether it can be successfully achieved in the immediate term. Having had experiences with this strategy in the past, I would stress before moving on that there is a difference between Mr Edwards’ approach (resignation) and taking a period of leave during the intended appointment period. The latter is unlikely to demonstrate a sufficient separation between the individual and the organisation in question, creating a degree of dubiousness around concepts like legal capacity and the effectiveness of delegation, related party transacting and any exemptions to member approval requirements at law, transparency of negotiations between the director and the board involved in their appointment, and the liability that attaches to the business in each instance. Consequently, my recommendation is that impugned directors accept that resignation is the correct course if they intend to serve as an interim CEO, and once a permanent replacement is found, move on.
The final option is less common, and involves the seeking out of an convenient intruder in the form of an external interim CEO. In sudden, drastic change events a board may discover that there is a measurable capacity gap and that immediately accessible expert leadership is required to navigate the organisation through the days that follow. Simply put, in these circumsances it is unlikely that the board would have sufficient time to engage in an extensive external search and recruitment effort to find a replacement, which can take many months to conclude assuming that a suitable candidate is located, secured and on-boarded. By appointing an external interim CEO through platforms like Gig Executive, a board can (a) maintain existing management team focus and capacity rather than requiring a sudden reshuffling of personnel and the backfilling of talent it involves, (b) treat the permanent CEO appointment opportunity as a closely monitored board project with the aid of timely, expert support, and (c) have the benefit of an independent resource capable of bringing fresh perspectives, skills and experiences to the business during a transitional period.
Obviously these are only starting points in the succession conversation and the reality for many firms is that the process is challenging, resource-intensive, and may very well define their future. And while - despite advances in 3D printing technology to date - we are unable to simply print the perfect successor candidate straight onto a (build) plate, if you nail the process, you may just end up with a candidate ready to step up to it.
How have you managed change and leadership succession as an organisation? Are there any strategies you have employed to streamline these processes? Let us know in the comments section below.