CEO succession planning has never been more important and yet it never fails to surprise how ill-prepared some boards remain about Chief Executive Officer succession planning. Why is that?

All CEOs will inevitably leave office, and research has long shown that many organisations do not have adequate plans to replace this key leadership role, particularly in an unplanned departure.

Every year, almost 15 per cent of Australian organisations must appoint a new chief executive. Early indications suggest 2022 could well set a new record for CEO mobility, and with growing reports of CEO's joining the "Great Resignation" boards would be wise to reevaluate their 2022 plans.

CEO turnover spiked in the first half of 2021, as companies tapped new talent to navigate the aftermath of the pandemic and stressed-out chief executives sought a career change. Reporting last month, Global search firm Heidrick & Struggles found that there was a 22 per cent increase in turnover.

The findings illustrate how CEOs are not immune to the exhaustion that has swept hundreds of millions of workers worldwide since the onset of the pandemic and has pushed many to consider a new job or lifestyle.

This isn't new. The trend was there for all to see.

In 2019, turnover among global CEOs hit a 15-year high. Activist investors are increasingly forcing out leaders they deem underperforming. In 2020 this trend was reversed, with a record-low year for CEO turnover, with boards opting for continuity. Now, rising numbers of C-suite departures seem to be as much about top executives staggering away from their jobs as being pushed out of them.

Yet despite longer-term trends, some boards remain hopelessly unprepared to replace their chief executives.

CEO’s are predicted to be on the move

A recent 2021 survey conducted by Luminary™ revealed that only 46 per cent of boards (down 5 per cent on 2020) were grooming a specific successor, and perhaps more worryingly, more than one-third had not identified a viable candidate who could immediately replace the CEO if the need arose.

Our assessment is that C-level mobility will only accelerate this year, with senior executives advising us that they have delayed their plans for too long. With state borders reopening, and relocation for family and lifestyle reasons undoubtedly coming into play 2022 could well be the year of the “great CEO reshuffle”?

And if the level of inquiry we've received over recent months is anything to go by, his could well be the case, so our advice to boards is that they need to act now when it comes to CEO succession planning or run the risk of being caught out.

What should boards look for when considering their next Chief Executive Officer?

Arguably the most important role in any organisation, CEO’s need to demonstrate a broad range of skills.

In addition to having the critical thinking skills to solve complex problems, they need advanced people skills to create an inspiring workplace.

Our research highlights six dimensions for your focus and assessment:

1. Context - Firstly, does the organisation require a “strategic leader”, someone capable of taking the team on a different path, setting and building an inspiring culture and workplace in the process. Alternatively, the company may be on the right path, in which case a leader whose strength is in setting and building a strong culture is preferable.

2. Risk - The board need to determine what attitude towards risk is desirable in the CEO. Does the board want an executive who thinks about risk in an entrepreneurial way? Or does the board want someone who takes a more systematic and pragmatic approach?

3. CulturalAdd™ - Thirdly, the board needs to consider cultural fit, or as we prefer to frame it CulturalAdd™, what can your new leader bring to the organisation that will lift the culture beyond its existing state.

4. Emotional intelligence - The degree to which the leader demonstrates empathy, compassion and care for their people and customers.

5. Character and commitment - Does the executive have the intellectual framework to analyse problems and develop strategy, do they understand your business and the sector you operate in?

6. Adaptability - Lastly, we’d look for evidence of resolve and resilience. Where has the new CEO had to overcome adversity? As technology develops, industries change. A CEO needs to be able to adapt to these changes quickly and have the resolve to keep your company current.

So what questions should you ask any prospective CEO at an interview?

When interviewing for your next CEO, here are seven specific questions would-be CEOs should be prepared to face.

1. What is your plan for us? A great early question to understand the depth and degree to which the executive has undertaken sufficient research.

2. Where have you implemented change? Evidence of their ability to articulate a clear and compelling vision and a plan of execution.

3. How do you build capability? We’d want to know how a CEO candidate would use a mix of existing and new talent when forming their leadership team. 

4. What is your approach to succession planning? Data consistently shows boards are often woefully unprepared for an untimely exit of a CEO. We’d want to assess their risk mitigation strategies for the ongoing running of the organisations.

5. How do you handle difficult conversations? Here I’d want to understand how they approach issues of equity and fairness, for employees, stakeholders and customers.

6. What have you learned from your failures? We all know it is easier to rattle off all of our successes. What we learn from our failures is often far more important. We also like to see how transparent and open a leader will be in acknowledging any shortcomings.

7. What makes you the best candidate to be our CEO? Lastly, we like to hear a “pitch” on why them and what they will bring to the role that is uniquely different to any other applicant.
   The lessons are clear. In addition to having adequate plans, boards need to ensure that your CEO recruitment and assessment process is robust and considers data drawn from multiple sources.

The lessons are clear. In addition to having adequate plans, boards need to ensure that your CEO recruitment and assessment process is robust and considers data drawn from multiple sources.

Your assessment process should identify quality leaders with the right skills and competencies to help your people thrive through disruption balanced with alignment and motivation to your purpose and strategy. Lastly, you need to articulate your cultural code to assess for CulturalAdd™.

And, of course, ensure that you are working in lockstep and partnership with your human resources and leadership advisory firm.