Contract signed? Check. Markets notified? Check. Handshakes all around? Check. Once the time-consuming and stressful search for a new CEO is over, many boards might be tempted to sit back and sigh with relief.
Temptation is fine—as long as you don’t give in. Not if the goal is a successful long-term hire. Experts say boards and individual directors have critical roles to play not just in CEO selection but also all through the CEO “onboarding” process, to help ensure a successful transition. The alternative: you wake up one day and realize your once-brilliant hire is among the 40% of new senior executive recruitments that fail, according to one report, within the first 18 months.
The transition period actually starts before the hiring is complete and lasts six months or more after, according to several experts who participated in a recent panel on successful CEO transitions, hosted by Deloitte and the Institute of Corporate Directors.
Doug Emerson, executive adviser at Deloitte in Toronto, says the first step is establishing “role clarity” regarding what the incoming CEO’s role is—before they set foot in the boardroom.
“What did you hire? Did you hire a change agent? And if so, how fast and how noisy do you want this change?” asks Emerson. “Or are we happy with how things are going and do you want someone to generally manage that? Think about the question of role clarity. If you didn’t talk about these things in the selection process, it’s called a day-one conversation.”
Communication between the candidate and selection committee during the interviewing process should clarify the organization’s priorities and take into account the subjects the incoming CEO is interested in tackling, says Emerson. This should happen “well before” an incoming CEO begins to embark on their own model for a 90- or 100-day plan—in which changes that may unknowingly plant the seeds for conflict could be made.
“How long are they there for? To leave a legacy or to make a few changes over two or three years?” asks Emerson. “Before that 90-day plan is enacted, you shouldn’t be handing them a blank sheet of paper. You should constantly be asking whether your priorities are aligned and be clear about the priorities of the organization.”
Along with clear roles, there also needs to be clear guidelines as to how the new CEO is to communicate with the board—how often and through what channels—and to determine decision rights regarding changes to management or compensation, for example.
Co-panelist David Denison, board chair at real estate adviser Bentall Kennedy and former CEO of the Canada Pension Plan Investment Board, says these objectives (be they execution of culture, customer service or talent acquisition) should be included in a written agreement accompanying the onboarding discussions.
That document, he says, can then be referred to as a tool for ongoing communication between the CEO and the rest of the board and be used to communicate the board’s expectations of the management team.
Referring to his own onboarding process at the CPPIB, Denison says he found it helpful for the board chair to regularly check in with him. As a best practice, he favours unscheduled short, candid and frequent conversations between a CEO and board chair as in the past they allowed him “to validate or correct” impressions he had formed on various matters.
“There’s a relationship that’s built with the chair of the selection committee yet the incoming CEO needs to establish a relationship with all directors,” Denison says. He adds that the chair can facilitate this by setting up individual meetings between each director and the incoming CEO. “There should be some structure around these meetings. Going back to the list of objectives, each director should be asked to prepare ideas around points the CEO has been asked to engage on and discuss them. The CEO also gets the benefit of different perspectives this way.”
Six months into the job is a good time for the board to meet to discuss how the CEO’s transition is progressing, says Carol Hansell, a third co-panelist and a leading governance lawyer and founder of Hansell LLP. “This discussion is not to pre-judge them on performance, but to talk about whether they are meeting the mark the board has set from the outset,” says Hansell. “The point is to identify any issues soon enough.”
She also reminds directors that effective communication with shareholders and stakeholders should be an ongoing concern during executive leadership change. “Understanding how shareholders, creditors, regulators and employees see the change and new CEO is one of the ingredients you use to determine how it’s going,” says Hansell. “Your communications may need to be adjusted to get shareholders to see the CEO’s agenda and how the transition is being handled more clearly.”
Photography: Tim Fraser