Knowledge Center: Publication
How directors can mentor potential CEOs10/9/2014 John T. Thompson and Karen Rosa West, PhD
Virtually every director we speak to strongly affirms that CEO succession planning is their board’s number one priority. And most subscribe to the view that under ordinary circumstances promoting from within is preferable to bringing in an outsider — too much is at stake to risk a cultural mismatch.
Beyond risk reduction, internal promotions reveal much about the company’s health and sustainability. According to Glenn Hutchins, co-founder of Silver Lake Partners and director at Nasdaq OMX, “The best organizations are those that promote CEOs from within. It shows that you are a company that attracts and develops its own talent. This is motivating because your best people see that they can aspire to the top levels of the organization.”
Less appreciated in boardrooms, however, is the notion that promoting an internal superstar can be risky when board members lack a deep understanding of their executives’ leadership potential. When an internally promoted CEO doesn’t work out, the reasons can seem mysterious. But most of the time it happens because boards do not fully understand their internal candidates’ character nuances and leadership potential and, as a result, cannot predict how they will actually perform when in-role.
Truly understanding an executive’s leadership potential to serve in the CEO role can be challenging. How does one distinguish between equally qualified high performers? How does one compare the stellar CFO to the top performing executive vice president of sales? As former Agilent Technologies CEO and current eBay director Ned Barnholt observes, “When you get to the point of interviewing candidates for the CEO role, they all have a pretty high baseline of technical and strategic competence. At that point, the key differentiators are the soft skills.” But properly assessing an executive’s soft skills and potential is an almost impossible task when directors have exposure to internal candidates that is limited to the cursory once-a-year dinner or golf outing. And even more importantly, executives that could be great never get the proper development opportunities if the skill gap was never identified in the first place.
This tough issue can be solved by breaking down the traditional barriers between directors and high potentials. To strengthen the leadership pipeline and minimize CEO succession risk, smart organizations facilitate relationships between high-potential executives and corporate directors. Well before an actual succession event, corporate directors are paired with rising stars in formal mentoring relationships. The pairing results in a mutually advantageous relationship that leads to better corporate performance. The directors better equip themselves for their CEO succession duties by gaining an intimate knowledge of internal high-potential talent, and the high-potentials receive invaluable mentoring from seasoned corporate leaders.