– Groom internal candidates. If the company intends to groom its next successor internally, it is necessary to invest in training and ensure potential internal successors are given real-world opportunities to showcase that they have what it takes to lead the company. They should also interact regularly with directors in order to cultivate a rapport that will assist the board in making an informed decision about their viability. – Plan for events that may affect succession. Consider conducting annual scenario analyses at either the board or standing committee level, to simulate possible unexpected developments that may affect CEO succession (e.g., misconduct, financial performance or activism). Remember that companies that underperform are more likely to see higher CEO turnover. Consider whether the potential successors are the right people to lead the company today and into the future, and update the criteria to respond to shifts in the corporate environment (e.g., COVID-19, changes in strategy and/or rising prominence of ESG- related issues). – Develop and refresh internal and external communications strategies for CEO succession planning. Providing clarity and transparency to the market, employees, regulators, customers and suppliers is critical. The goal should always be to inspire confidence in the company’s management over time, despite significant changes in leadership. – Ease the transition process. Consider creating a role in the management committee (e.g., president or deputy CEO) to simplify and facilitate the successor’s eventual appointment. Retaining the current CEO as a strategic adviser or as a member of the board can also help smooth the transition.
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Governance Insights 2022
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