The UK CEO is no longer appointed for the long term. The average term is now 4.8 years, below the global average of five years. Boards must begin to work on CEO succession as early as possible, and should bring the current CEO into the process. Although directors often feel challenged by their role in succession, the Chief Human Resources Officer (CHRO) must intervene, showing that the company has assured the development of a robust succession pipeline and should set expectations with the board that succession planning and talent development are ongoing and shared responsibilities.
More than three-quarters (76 per cent) of new UK CEOs who started in their roles last year had no previous experience as CEO of a public company, but they also have less time than ever before to make an impact. The average length of time the CEO of a large UK business spends in the job has hit a low of 4.8 years, dipping below the global average of five years for the first time, and down from a UK high of 8.3 years in 2010.
PwC’s Strategy&’s CEO Success Study, which tracks CEO succession at the world’s largest 2,500 public companies (including 300 in the UK), shows that UK companies have the highest turnover rate globally after Brazil, Russia and India. 16.3 per cent of UK companies changed CEO last year, compared with the global average of 14.9 per cent.
Part of this may be attributed to the decline of the combined chairperson-CEO role in the UK. The number of combined chairperson-CEOs has fallen in the UK to less than 1 per cent of all boards.
“UK CEOs now have less time than ever to make their mark on a business. The time they spend in the role has fallen from a high in 2010 to drop below the global average for the first time. Less than five years is a very short time to make real and tangible changes to a business. Stakeholders are demanding ever faster results, but should consider the long-term too to ensure stability,” comments John-Paul Barker, UK leader of PwC UK’s strategy consulting business.”
The Challenge of Succession
Despite the increased need to address CEO succession, UK boards have traditionally been reluctant to broach the topic. There is a sense that the current CEO might be offended, particularly when that executive is playing a powerful role on the board as well as in management, according to research by London-based board dynamics expert consultancy Spencer Stuart.
See how a board portal can help prepare the board of directors better prepare a CEO succession strategy.
Spencer Stuart warns, however, that boards must not hesitate to get started early on CEO succession, and to bring the CEO into the process. The time when a UK CEO named his or her successor is long gone; this is now a decision for the full board. But no one is better qualified to advise on the process than the CEO, particularly as that executive is likely to have profound insight into which top-level managers might qualify for the role. At the most basic level, the CEO’s role is straightforward: driving management succession at senior levels, including the early identification of any inside CEO contenders, ensuring that the organization is developing succession-ready executives for all senior roles and serving in an advisory role to the board on CEO succession.
This also means ensuring that the strategy and criteria for the next CEO is forward-looking enough. When the strategy relies too heavily on status-quo assumptions or doesn’t look far enough out, it reduces the chances that the process will produce internal candidates with the right skills for the future business. Potential successors must be assessed on the basis of their ability to make future contributions, not just on what they are achieving in their current management position. This means thoughtfully and effectively assessing internal candidates.
Yet, according to the research, directors often feel that they lack the insight with which to thoroughly assess potential successors or to understand whether a candidate will be ready in a specific time frame. Here, the Chief Human Resources Officer (CHRO) must intervene, showing that the company has assured the development of a robust succession pipeline. Working closely with the board (if, in fact, not a board member), the CHRO should set expectations with the board that succession planning and talent development are ongoing and shared responsibilities. The board should be regularly briefed on the operation of the succession pipeline, and should understand the criteria used to develop it.
“Wise boards agree on strategic issues upfront, since these decisions will influence the kind of future leader or leaders the company will need, and push themselves to go beyond generalities. They identify the very specific effect the next CEO needs to have on the business and define the skills that it will take to accomplish that effect. These could include invigorating the innovation pipeline, applying disciplined cost management, pursuing specific growth targets in emerging markets or building new organizational capabilities or cultural themes to drive organic growth,” Spencer Stuart explains.
Diligent Boards Supports the CEO Succession Process
Diligent Boards, the world’s leading board portal, supports the management of the CEO succession process by enabling an environment for secure and real-time communication. All forms of communication are enabled and operate within the highest possible grade of threat protection.
In fact, Diligent Boards manages the full scope of a board’s moving parts through one intuitive, secure online portal. It enables board members to stay current by storing all board-related materials, like board books, and to update them in real time. With Diligent Boards, directors may easily keep up with committee meetings and all related developments.
Everything on Diligent Boards is easily searchable, with organised archives and libraries of resources.
Diligent Boards also functions from all major operating systems, so directors may choose the devices and platforms from which they wish to access it. Real-time syncing across devices is enabled.
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