Organisations become less effective—sometimes spectacularly so—during the time it takes to make the transition from an outgoing chief executive to a new one. The lesson from experience is that the transition process can, and should, be managed with as much deliberation and care as the selection process itself.
From the board’s perspective, the transition process to a new chief executive will have at least three distinct phases.
Phase 1: Speculation about the present chief executive's future
The first phase occurs when an organisation, for any reason, experiences speculation about the continuity of its leadership. Such speculation may be confined to a hesitant expression of doubt at board level about the current chief executive’s suitability, competence or commitment to the position. More widely and overtly, rumours might be rife throughout the organisation and its sector about the chief executive’s grip on the role.
Such speculation inevitably weakens and diverts the organisation. Not only will key stakeholders inside and outside the organisation become progressively distracted and unsettled, but the speculation may also become self-fulfilling. Even when it is known that the existing chief executive is likely to retire but the timing is not yet clear, corporate equanimity is likely to be disturbed.
Phase 2: The chief executive’s departure is announced/recruitment is underway
The second phase commences immediately the departure of the outgoing chief executive is announced. This introduces a period of considerable uncertainty. The board’s attention is split between the performance of the incumbent and the selection of a new chief executive. Depending on the circumstances of the ‘old’ chief executive’s departure, this may be stressful. During this period the influence, authority and motivation of the outgoing chief executive gradually—or possibly rapidly—wanes. This ‘lame duck’ period will last until the ‘old’ chief executive departs.
For both staff and external stakeholders, attention and interest is on when the announcement will be made and who will be the replacement. The timing is often very uncertain, even for the board. The flow-on effects can be significant. For example, the key remaining players in the executive team may naturally begin to focus more on the politics of the situation and on positioning themselves for a run at the top job. Boards may notice significant changes in behaviour as senior executives who are not aspirants to the role worry about their own futures under new leadership.
If there is a gap between the departure of one chief executive and the arrival of the next, there may be the added complexity of the need to appoint an ‘acting chief executive’. As part of a managed transition this option can be advantageous—buying time in the recruitment process, for example. Also, through the eyes of an acting chief executive who is not a candidate for the position, the board can gain new insights into the organisation’s dynamics and leadership needs. This can help greatly in selecting a new chief executive.
On the other hand, it can also bring some negative dynamics. For example, because an acting chief executive will not have to live with the consequences, many boards are reluctant to mandate them to deal with difficult issues. This can mean the period of hiatus is extended and the organisation may drift or become stationary. The circumstances that led to the departure of the old chief executive may be exacerbated even if appointing a new chief executive is seen as THE solution.
Phase 3: A new chief executive is in the seat
The third phase begins when a new chief executive accedes to the position. Typically, this phase may last for six months or more—the time it takes for a new chief executive, even an internal appointee, to assess the organisation, its people and its operating environment. This is the minimum amount of time it takes to build a relationship with and gain the confidence of the board.
Choosing and installing a successor, especially when the new chief executive comes from outside the organisation, puts a strain on the whole management team. During this time the organisation’s senior executives are still wondering how they will work with their new boss and whether their jobs are safe. It is not uncommon for the new chief executive’s assessment to result in significant changes to the organisational structure and/or to personnel in the leadership team. So, this phase may extend for even longer while key changes are made and new people settle into their roles.
Because of these three transition phases, the change from one chief executive to the next might easily, therefore, take at least 12 months and probably significantly longer. During this time the organisation is likely to experience at least an extended hiatus in its performance and possibly even a deterioration.
This transition does not just affect board, management and staff. Other important stakeholders (owners/members, customers and suppliers, strategic partners, etc.) can find the process similarly disruptive to their relationships with the organisation.
All boards should be conscious of the prolonged duration and potentially negative impact of this transition process if they must make a change in chief executive. In an increasingly fast moving and uncertain operating environment, most organisations simply cannot afford to risk substandard performance for this length of time. The damage can be substantial and the recovery—even with an outstanding new chief executive—long and slow. Readers are likely to be able to identify current examples of major listed companies in exactly this position.
First, consider whether a change in chief executive is necessary. When boards are considering forcing a change in chief executive they should think long and hard about whether an investment in ensuring the success of the current chief executive might not be a better option. This will frequently relate to various forms of professional development but an answer might also lie in the composition of both the senior executive team and the board itself.
No chief executive is ever the complete package. A board’s perceptions of its chief executive’s effectiveness can often be changed dramatically by improving performance in other key executive roles. As to the board’s composition, we have seen chief executives ‘come back from the dead’ when an antagonistic board member has been removed or an ineffective chair has been replaced.
Second, if there is to be a change, explicit effort should be made to speed up and smooth out each phase in the transition process. While it will require much of the board—particularly its chair—the transition process should be treated as a project to minimise the length and negative impact of the transition period. Each step should be carefully planned and managed closely.
When a change of executive leadership is unavoidable, both the organisation and its new chief executive have much to gain from an effective and assisted transition process. A range of track-tested processes is available to help both organisations and individuals make successful (and more rapid) chief executive transitions. The purpose should also be to increase the likelihood that any further such transition will not be needed any time soon.