CEO succession planning in the energy sector

No job is more important for a board than appointing the right chief executive officer. And nothing better serves this task than a great CEO succession plan
By Beverly Behan

Over the past three years, I had the privilege of working with the chairman of a Fortune 500 company in the energy sector in developing one of the most progressive and rigorous CEO succession plans ever undertaken in the United States. While I am not at liberty to name the company, I’m happy to share some of the key elements that set this board’s CEO succession process apart.

We began by interviewing every single member of the board of directors to achieve two things at the very outset of the CEO succession planning process:

1. Establish CEO criteria. We asked the directors how they saw the CEO role changing from what it was today. What would be the necessary skills, experience and background for the next leader to have in order to take the company where the board wanted it to go? What about issues of cultural fit/leadership style? Through this process, we identified a distinct shift that the board considered necessary in the CEO role—a far greater emphasis on strategic acumen and appetite for risk, as befits the sector’s challenges.

2. Develop a CEO succession roadmap. A three-year plan was created that laid out every step in the CEO succession planning process including changes in job responsibilities of internal candidates, when the board would choose one of the candidates as chief operating officer, executive assessments of internal candidates, benchmarking of internal talent against external talent pools, when the board would make a decision on external candidate search, and the target date for CEO selection and transition. The chairman used this roadmap to keep the CEO succession plan on task, modifying both the timing and the steps every 6 to 12 months as progress was made.

One of the most important features of this CEO succession plan involved the use of the chief operating officer role. While COO roles are often used as a final stage in the grooming of a CEO candidate, they are typically 12-month “heir apparent” positions. We chose instead to make the COO role a “real job” for 18 to 24 months that would be a proving ground for the top internal candidate. As such, the COO selection process was highly rigorous: the top internal candidates each made a presentation to the CEO succession committee of the board without the incumbent CEO present.

They were asked to outline their vision for the company’s future in detail, their goals and objectives as chief operating officer (in terms of both their learning goals and how the board should judge their success) and to highlight those facets of their background/ experience most relevant to becoming the future CEO.

As part of this process, the CEO succession committee interviewed the incumbent CEO and other top executives, specifically asking for views on each internal candidate relative to the future CEO criteria. The process was also complimented by third-party executive assessments on all internal candidates—which addressed some of the risk appetite issues, among other factors—and an external benchmark of the internal candidates relative to the external talent pool.

Ultimately, the candidate selected as chief operating officer was chosen as chief executive officer. In fact, his performance in the COO role was such that the board accelerated the selection date by six months and determined that an external search was not necessary. It’s particularly interesting to note that the successful candidate was not the front-runner at the start of the succession planning process. Younger than the others, he was viewed as somewhat of a dark horse. However, the strategy presentation, the executive interviews using the CEO criteria, the executive assessment and his performance as chief operating officer convinced the board he was the best choice as the company’s future leader. Without the rigour this board adopted in its CEO succession planning process, they may well have made a different decision.

The choice of CEO is probably the single most important decision any board will make. Yet, it is often made with fairly de minimis due diligence. The process a board uses on CEO succession not only translates directly to the quality of their decision, but also reflects to company executives the seriousness with which the board takes that decision. This is an example of a board that really raised the bar and is worth consideration not only by other boards within the energy sector but in other sectors as well.

Beverly Behan is a New York-based board consultant who has worked with more than 100 boards of directors in the U.S., Canada and internationally in the past 17 years. E-mail: beverly.behan@boardadvisor.net.

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