How to survive the death of a CEO: emergency succession planning tips

22 September 2015 -

Having a pre-planned strategy in place is vital if a company is to survive the sudden departure of a CEO unscathed

Jermaine Haughton

Senior management turnovers of any kind are major investments of time, money and effort, with stakeholders aware that one wrong move could spell disaster for the company.

The ill-judged hiring of a replacement CEO could derail any firm, no matter the size, and this pressure on board members and investors is exacerbated when a ‘company plane crash scenario’ occurs – whereby, the CEO or chairman of an organisation unexpectedly dies or leaves the company with immediate effect.

Despite the seriousness of the risk, too many companies are failing to put plans in place to ensure a smooth handover, regardless of the cause.

In a joint RHR International/Chief Executive magazine study of 236 corporate directors, 40% of respondents said that they are not prepared for an emergency succession in the event of a sudden, unexpected or unplanned departure of their company’s top leader.

David Larcker of Stanford Graduate School, co-author of the 2014 Report on Senior Executive Succession Planning and Talent Development, said: “The corporate leaders we interviewed all believe that succession is vitally important today, just as it has been in the past. Still, the majority do not think that their organisations are doing enough to prepare for eventual changes in leadership at the CEO and C-suite levels, nor are they confident that they have the right practices in place to be sure of identifying the best leaders for tomorrow.”

One of the simplest and most obvious strategies is to promote the departed CEO’s deputy into the leadership position, or to headhunt an experienced boss from a similar firm in the same industry. But from Louis Chenevert at United Technologies to Steve Ballmer at Microsoft there are a number of examples of both these tactics proving to be less successful than investors would have hoped.

An emergency succession creates the need for a unique type of crisis leadership, which demands the new leader to immediately address the emotional dynamics of uncertainty and grief, and prevent a loss of focus that would undermine the effectiveness of the business.

Poor succession planning and time-consuming executive searches can also dampen investor confidence, often leading to falling stock values and generating uncertainty about the strategic objectives of a company. CEO Mark Hurd’s departure from Hewlett-Packard in late 2010 revealed the company’s inadequate succession planning, with shareholders protesting against Hurd’s $40 million separation agreement and the board struggling to find a new leader. As a result, the tech firm experienced a 12% slump in stock price, and stagnated for months – damage that is still affecting the company almost five years later.

To avoid falling into such pitfalls, employers must tailor the selection process specifically to the demands of the firm, its culture and its future aims.

This can be most comprehensively achieved by the chairman, CEO, directors and senior management developing, and continually revising, an emergency CEO succession plan in advance of being forced to name a new leader at short notice.

Allowing the company to react quickly to crisis situations, a contingency plan ensures the continuous coverage of executive duties and safeguards the interests of the company’s stakeholders, reputation and value-creating activities. It also provides guidelines for the board when it must appoint an interim CEO.

The document should be a thoroughly researched strategy of who would take over the leadership of the company immediately after the death or departure of a CEO, as well as how senior management will be restructured to successfully manage the unique challenges emergencies bring to firms, and prevent those situations from adversely affecting operations.

Here are three tips to implementing a successful contingency plan for replacing your CEO at short notice.

Align Company Strategy With CEO Criteria

Before discussing prospective candidates, it’s vital for the board to determine the current market position of the company, its collective vision and direction for the future, and the strategy and culture required to achieve its near and long-term goals. 

Develop Future Leaders

Each employer should encourage the identification and development future leaders within its offices to create a competitive, effective and trusted workforce. The prospective talent pool should be frequently challenged to test their skills and decision-making under significant pressure, as part of a customized development scheme.

Proactively Manage And Monitor The Transition

Directors and long-standing senior management are vital in helping the new leader settle into the company C-Suite as quickly as possible. While it may be tempting for the board to breathe a sigh of relief once the appointment is made, research shows a successful integration process of between 12 and 18 months is essential to prepare the succeeding CEO correctly.

Want to learn more about finding the right person for your business? Then register for this CMI course on recruitment and selection