In their article, Leapfrog Succession: A New Trend in Appointing CEOs by Roselinde Torres, Gerry Hansell, Kaye Foster and David Baron, the authors identified an emerging trend whereby an increasing number of CEOs are ‘leapfrog leaders’ meaning that they have been fast-tracked past the more senior executives in the organisation.
The reasons for making these often younger, less experienced appointments are usually to do with either a shortage of suitably qualified experienced candidates or a desire for the organisation to make a step-change by bringing in someone who is more forward looking and possibly more up to date with the latest business trends.
With all new CEO appointments, boards should ensure that they do as much as they can to ensure a smooth transition and provide the support that is needed to help to make the appointment a success – in the case of ‘leapfrog leaders’ the Chairman and the other Non-Executives will need to be particularly aware of the potential risks and pitfalls of adopting and implementing this CEO succession strategy.
The two most obvious risks in making a leapfrog CEO appointment is that the new CEO will probably not have had experience of the role, certainly not at this new level and the other executives, who may have been hoping to take on the CEO role themselves may be disappointed or find it difficult to report to someone who has not paid their dues in climbing the corporate career ladder.
The Chairman, with the assistance of the other NEDs can take a number of steps to mitigate these risks:
- At an early stage in the recruitment process, ensure that the selection criteria for the new CEO is owned by the board, including the other executives, so that there are no surprises when ‘leapfrog; candidates appear. Many of the ‘leapfrog’ appointments have been made in the retail, technology and telecommunications sectors where a requirement for knowledge and experience of digital media, new technologies or disruptive business models is likely to lead to the selection of younger, more inexperienced candidates. These are most likely to be the skills that the current executives are lacking in – if they understand the business need for the new CEO’s profile then they are more likely to accept someone who is younger and less experienced.
- Unless a ‘quick fix’ is essential, where, for example the current CEO has quit, or there has been a dramatic shift in the market caused by a disruptive new entrant, it is advisable to bring the new CEO along by appointing them first to a subsidiary board, or to the main board in a non CEO executive role. This allows them to gain experience at the right level and earn the respect of their colleagues on the board.
- Investors will inevitably be anxious about the appointment of someone who has not earned their stripes or, even when they welcome the appointment as a refreshing change to a fading CEO, they may have unrealistic expectations. These must be managed by making sure influential or activist investors are aware of the proposed succession strategy and they are kept informed of progress at regular intervals once the appointment has been made.
- It is usual for a newly appointed CEO to have a 100 day plan which balances the need to be seen to be making an impact in the new role with the requirement to take stock, listen, formulate ideas and earn respect. With a ‘leapfrog’ leader or in fact anyone who is in their first CEO role, it is a good idea to also run a board 100 day plan in parallel with the CEO’s own plan. This can begin with a thorough review by the board of the organisation’s Mission, Vision and Values followed by a review of the business model and strategy. This gives the new CEO time to bed-in whilst at the same time involving the rest of the board in the process.
- Coaching can play a vital role in ensuring the success of the new CEO appointment. The new CEO should have access to a personal coach, at least for the first 100 days to address the issues of lack of experience and possible conflicts with board members and senior management. The Chairman can also provide a useful coach/mentoring role for the new CEO and the other NEDs may also provide coaching for the other executives to try and avoid them feeling disappointed or demotivated.
- The Chairman and NEDs should anticipate that the new CEO appointment may trigger the loss of some of the other executives and they should ensure that their succession plans for directors and senior managers are up to date. Remuneration and/or Nomination Committee Chairs should make sure that their committees have contingency plans to cover any executive exodus. Longer term, succession plans for the rest of the organisation may have to be modified, especially if the new CEO appointment is the result of a major change of strategic direction for the business.
Whilst many boards will stick with the tried and tested approaches to CEO succession of either promoting from within or recruiting externally from a pool of executives with similar skills, background and experience, it is almost inevitable, due to the rapidly changing dynamics in most business sectors that boards will have to appoint a CEO from outside their comfort zone at some time in the future.
The role of the Chairman and the other Non-Executive Directors in making sure that such appointments are successful is becoming increasingly important. The practical advice outlined above can also be applied in all cases when a new CEO is appointed.
In the US, where the CEO and Chairman roles are still, in the most part, combined it is important that someone, typically the outgoing CEO, takes on the Chairman role, at least for the first year of the new CEO’s appointment.
There is talk in the US of creating a ‘lead director’ role which in many ways would replicate the role of the Non-Executive Chairman in the UK. Whatever the title, it is important that someone on the board takes responsibility for making a successful ‘leapfrog leader’ appointment.