Boards are increasingly having to deal with sudden departures of executive leaders, prompting a rethink on how to prepare for the unexpected.
Emergency succession planning is rarely at the top of any board’s list of priorities. In fact, experts say most boards only consider it when….the emergency happens.
But such emergencies are becoming all too common these days in corporate boardrooms, particularly around C-suite replacements. CEO exits increased 17% in September from the year earlier, and year-to-date turnover is tracking last year’s pace. Fully a third of Fortune 1000 company CEOs have left since 2017. While many of those departures have been part of an orderly succession, others have not. There have been illnesses, unexpected tragedies, and issues around corporate wrongdoing, each of which has triggered the need for a sudden replacement.
Jane Edison Stevenson, global leader of Korn Ferry’s CEO Succession practice, says most boards need a thoughtful plan for such cases that includes a deep pipeline of leaders (both inside and outside the company) who can “step up as needed.” As an example, she mentions how a firm whose CEO became suddenly incapacitated wound up with a surprise successor the board didn’t think would ever be a candidate—but who turned out to be “the one.” “Boards need to take a ‘be ready for whatever happens’ approach because anything can happen at any time,” says Stevenson.
It may make sense for a firm, as part of its emergency succession strategy, to have a designated interim leader standing by. “Don’t wait for an emergency to happen to act,” says Michael DiStefano, CEO of Korn Ferry’s Professional Search and Interim businesses. But as experts point out, not all emergencies are created equally, so smart boards are reviewing different real-world scenarios. These include:
Course Correction: If COVID taught boards anything, it is that business conditions can change at any time. A strategy that is being executed flawlessly could abruptly be derailed, and the incumbent leader may not be right for the company’s new direction. Tierney Remick, a vice chair in the global board and CEO services practice at Korn Ferry, cites as an example a company that conducted an exhaustive talent benchmarking process to identify potential CEO successors—only to have to start over six months later because its asset mix and business profile had changed dramatically, rendering the previous success profile obsolete.
Increased Teamwork: The biggest difference in leadership in the post-pandemic era is that CEOs no longer run the company by themselves. Today they are part of an enterprise team dynamic in which everyone on the executive leadership team plays a role. As a result, boards don’t just need to think about emergency succession only for the CEO; they also need to consider it for the CFO, COO, CHRO, and other key leaders. “It is about making sure the chessboard is set up to win,” says Stevenson. “The board should be thinking about how different leadership options will play out should the need arise.”
Social-Media Pressure: The more CEOs are pressured to speak out about political and social issues, the more likely it is that they will say the wrong thing at some point, says Charles Elson, founding director of the Weinberg Center for Corporate Governance at the University of Delaware. “Today, there’s a greater risk of losing someone unexpectedly because there’s more exposure,” he says. That’s especially true on social media, where CEOs who have tweeted views that have clashed with those of users or customers resulted in their sudden resignations. “Boards need to be ready to deal with the fallout,” says Elson.
Activist Attention: Campaigns by activist investors rose 34 percent over 2021 in the first half of this year, and more than one-third of those campaigns raised issues over the incumbent CEO. Some of those campaigns ended with the naming of a new CEO, but experts say boards with strong succession plans can better manage the outcome and install their own internal (or even external) ready-now leader in the position instead. “Pressure is coming from so many places,” Remick says. “Boards need to know what talent in their succession pipeline can be harvested at a moment’s notice.”