Replacing senior executives is something quite common. In every organization, there have been, are, or will be situations when the boss decides to leave his or her post, either because of age, weariness or unhappiness. There are also situations when the corporate board of directors decides to do without the CEO’s services. Even when the dismissal is announced in advance, there is always a sense of nervousness and crisis when a new leader takes over. That’s what people sensed recently, for example, when Brazilian-born Vanderlei Luxemburgo, bid farewell to the Real Madrid football team.
“The succession process is always a critical moment for the management of any enterprise,” says Santiago Barba Vera, professor at the University of Deusto in Bilbao, Spain, in his new study, “The Succession of a CEO: Managing the Crisis,” published in the Universia-Business Review. In that article, Barba Vera makes a series of recommendations for creating a succession process that has the least possible impact on the corporate bottom line and on the motivation of the management team. One of the first steps a company must take is to analyze why the change in leadership is going to create a crisis. The company needs to accept that the crisis exists and that it is necessary to find an appropriate way to handle it.
According to Barba Vera, if the replacement is planned in advance, the transition process is quite different than if it is unplanned. “You have different assumptions when you fire a managing director and when he retires. It’s one process when he decides to move on to another company after making an agreement to that effect, or when his dismissal results from a merger or an acquisition by another company,” he notes.
Managing a departure covered by an agreement [with the previous CEO] is not a complicated process, but it helps to plan for any departure. Companies need to establish a succession plan, put it in place in advance and execute it over specified periods of time. “You have to count on the possibility that there will be internal candidates who aspire to the position. The managing board and the CEO must decide if they are interested in considering an internal candidate.” Companies such as General Electric believe it is critical to guarantee that there is at least one internal replacement for their chief executive. So when it was time for Jack Welch to retire, GE had already decided on an internal replacement — the current president, Jeffrey Immelt.
Unplanned replacements are more commonplace, and they can occur in several different ways. The CEO can decide to move in a different direction, or the board of directors can decide to remove the CEO and change the direction of the company. It can happen because of pressure by shareholders or as a result of a merger. In any case, notes Barba Vera, “when a departure is not planned for, managing the crisis is more complex than when the departure has previously been planned for.”
Are you going to promote an internal candidate? Or are you going to bring in new blood? What transition process do you want to set up? How are you going to integrate the new chief executive into the leadership team? The board of directors must immediately address these questions as soon as it has been decided that the CEO is going to leave the company.
If the board decides to promote an internal candidate, the transition will be quiet, easy and orderly. There could be a problem, however, if there are several internal candidates for the post within the company but the board decides to choose an outsider. The transition will be more complex. Barba Vera identifies a series of key considerations: Companies must avoid de-motivating those internal candidates who don’t wind up getting the top job. They must guarantee that collaboration continues during the transition period, and they must guarantee that the managing team is preserved until the new chief executive takes the reins of power. “Tact, communication, economics, and motivation are also fundamental considerations,” adds Barba Vera.
If a company decides to pick an outsider as its new CEO, Barba Vera recommends that the company designate one member of its management team or board and make him or her responsible for leading the transition until the new CEO arrives. This should be someone who is highly regarded — someone who can channel decisions and support the transition process.
The Transition Plan
“When you manage the process of replacing a chief executive, you have to be agile in your communications and decision-making. It is important to avoid a power vacuum. You need to avoid dead time and rumors,” says Barba Vera. He provides the following steps for managing the crisis:
— Before departure, companies must agree to communicate the departure of the chief executive to their corporate board of directors. They must decide to whom they will communicate the news. Who will be in charge of communication, and what support they will get? If you decide to promote someone within the organization to the vacant post, announce the name of that person at the same time that you announce the departure of the former chief executive. That way, you can dispel any doubts within the organization. If no one has the skills to manage the transition within the managerial team, the company should designate a “succession committee” that will operate until the new chief executive is brought in.
— At the moment of departure, companies must communicate that news, and tell everyone how they are going to carry out the transition. They must also explain what the situation will be like inside the company.
— The days immediately after the departure are also critical. The crisis succession committee should meet to define the key things that must be managed during the transition. In addition, members must identify the key personnel that they do not want to lose during this period. They must design a plan for guaranteeing that the team stays together and begin taking measures that communicate a sense of normalcy.
— During the transition period, the company should generate both confidence and calm. However, senior executives must also plan for the day when the new CEO will join the team and, of course, for what happens later on. How will they manage the integration process? How will they prepare the transfer of documents and knowledge, while making people feel that the organization is on a solid footing and that they are in full control?
After the company has overcome the emotional impact of the CEO’s departure, a new stage begins involving a sense of uneasiness. That sense of anxiety will not be fully dispelled for quite some time.
Every process of organizational change provides an open door toward new opportunities. However, as Barba Vera notes, “It also frustrates expectations and provokes a break in the psychological contract with the previous boss. That, in turn, makes it easier for key people in the organization to reorient their careers toward other companies.”
The crisis will not end abruptly after the new chief executive comes aboard. Instead, there must be time provided to transmit knowledge to the new boss, and integrate him or her into the company.
How any organization resolves these problems says a great deal about its corporate culture, says Barba Vera. “In managing the leadership crisis, there is much more at stake than the transition from one chief executive to another CEO. The entire managerial team and the company’s social prestige are also at stake.”