Leadership and Change Management

Chapter 8 : Leadership Succession

Leadership succession-an overview Importance of the right CEO Insider Vs outsider for CEO Job

Choosing the Right CEO

Involve the whole board of directors
Directors should design detailed criteria for the successor Boards should be given the option to choose from a list of outside candidates also, along with insiders Directors should base succession decisions on real human interaction Boards should not rely too much on headhunters while scouting for candidates from outside Boards should have an open and fair process Smart human resources people should be involved Succession planning should be a continuous process

Women CEOs

Chapter Summary

Succession is the right or act of taking over another person’s place in office, rank, or duties. Though succession is important, not many organizations pay serious attention to it. Most incumbent CEOs want to continue in their jobs in spite of their old age. In 2002, Marianne Betrand of Chicago Graduate School of Business and Antoinette Scholar of MIT, both economists, conducted a study on CEOs in similar businesses.

They found that though these CEOs are in similar businesses, yet they conducted their businesses in different ways, and their performance was also very different. Conducting a more detailed study, Nitin Nohria and his colleagues at Harvard Business School found that CEOs do in fact have substantial impact on the performance of their companies.

On an average, they found that 14% of a firm’s profitability depends on the CEO. One reason why succession problems occur is that boards do not handle their responsibility the way they should. They delegate CEO selection to recruiters or just to the existing CEOs. Thus they forgo the opportunity to understand their CEO candidates. Some people say that what ensures a company’s success is its culture and strategy.

Culture and strategy, no doubt, play key role in the success of the company, but culture is energized and strategy is designed mainly by the CEO. There are several social reasons why there are fewer women in CEO posts. But this may change with changing times. Today there is an increasing number of women reaching positions just below that of the CEO.

Companies recruit an outsider for the job of CEO when they are in turmoil. The insider has some inherent advantages. He/she has well-built networks of loyalists who will help in the running of the firm. For an outsider this is not so. A company can choose the right CEO by involving the whole board in the selection process, by allowing the directors to decide the criteria for selection, and by using recruiting agencies only to the extent necessary.

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