EE2014Dec -CEO succession in tax-exempt - Hay Group No 4 - CEO succession planni… · a roup ll...
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©2014 Hay Group. All rights reserved Tax-exempt organizations have a long history in the United States, and recently, have become even more important in achieving important social, educational, and health-related goals in our society. At the same time, overseeing these entities has become more complicated – because of the nature of the services provided, the laws and regulations that must be complied with, and the various stakeholders interested in the “why” of an organization’s existence and the “how” it is meeting its mission. As a result, the leaders of these organizations have become a critical component of their success – developing the strategy to meet the mission, overseeing its implementation, and measuring whether the strategy is working. These leaders are the members of the board (of trustees or directors) and senior management, both of which need to work together in their respective roles. Importance of planning for CEO succession One of a board’s most important roles is making sure that the members of senior management are “right” for the organization; this includes overseeing the succession of key positions, beginning with the top executive officer (i.e., the CEO). However, a recent survey found that only 29.6 percent of tax-exempt boards have a formal CEO succession planning process in place and CEO succession planning in tax-exempt organizations
Transcript of EE2014Dec -CEO succession in tax-exempt - Hay Group No 4 - CEO succession planni… · a roup ll...
©2014 Hay Group. All rights reserved
CEO succession planning in tax-exempt organizations 1
Tax-exempt organizations have a long history in the United States, and recently, have become even more important in achieving important social, educational, and health-related goals in our society. At the same time, overseeing these entities has become more complicated – because of the nature of the services provided, the laws and regulations that must be complied with, and the various stakeholders interested in the “why” of an organization’s existence and the “how” it is meeting its mission.
As a result, the leaders of these organizations have become a critical component of their success – developing the strategy to meet the mission, overseeing its implementation, and measuring
whether the strategy is working. These leaders are the members of the board (of trustees or directors) and senior management, both of which need to work together in their respective roles.
Importance of planning for CEO successionOne of a board’s most important roles is making sure that the members of senior management are “right” for the organization; this includes overseeing the succession of key positions, beginning with the top executive officer (i.e., the CEO). However, a recent survey found that only 29.6 percent of tax-exempt boards have a formal CEO succession planning process in place and
CEO succession planning in tax-exempt organizations
©2014 Hay Group. All rights reserved
2 CEO succession planning in tax-exempt organizations
many boards do not address CEO succession (or talent management in general) as part of a standing agenda at a regular board meeting until a leadership transition is clearly on the horizon.
Effective boards not only have regular discussions about succession planning and managing the organization’s talent pool; they also have a formal process in place well before the CEO’s exit, enabling them to properly address how best to replace the incumbent. These boards see succession planning as an essential governance responsibility related to driving organizational success and providing for staff leadership.
Mapping the processA first step in the succession planning process is identifying the need to develop one. Most experts agree that a board should begin the succession process roughly four years before the CEO is expected to step down; the best practice is succession planning as a continuous process.
The process generally should address:
�� When the process should begin
�� What are its crucial steps
�� Who is responsible for what (e.g., senior management, the current CEO, the board or a subset of the board)
�� Whether outside assistance will be used, and if so, when it should be retained
The board and the incumbent CEO typically build this process together, so that key steps and players in the process have been agreed upon when implementation commences. Next we consider the details of specific items in the formulation of well-designed succession planning.
The organization’s strategy: the foundationStrategy is the cornerstone to the succession planning process. Based on industry trends and their expected impact on the organization’s future direction, the board and senior management need to develop an alignment on
the organization’s long-term goals. Mapping the organization’s strategy through a balanced scorecard approach often can help a board see how performing certain activities fosters the achievement of organizational objectives along critical dimensions (e.g., financial, customer, internal process, learning and growth).
Why is strategy the foundation for the succession planning process? Because the board and the current CEO will use this as the starting point for identifying the role requirements of the next CEO. Depending on the anticipated changes in the organization’s strategy and/or organizational structure, the role profile of the future CEO may be different from that of the incumbent CEO. For example, an organization that has completed a string of acquisitions with a visionary CEO who is retiring may need to identify candidates for the CEO role who can take these acquisitions and mold them into an integrated enterprise. Unless the strategy is clear and supported by board and management, these groups cannot identify and articulate the role requirements for the new CEO that are specific to the future direction of the organization.
Future CEO role requirementsDespite similarities in titles, each CEO position is different. While the accountabilities of CEOs across organizations may be consistent, the context and the leadership requirements vary considerably based on many factors, including the performance of the organization, its positioning in the market, the structure of ownership and/or control, culture, organizational construct, and capabilities of current and future leaders.
An organization’s current context and strategic challenges will factor into the role requirements for the next CEO. For example, the “entrepreneur” CEO who started the organization from the ground up is not likely to have the same set of skills and competencies as the CEO who has to implement the organization’s mission in a disciplined operating model.
The board will need to agree on the critical abilities and leadership competencies that will
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CEO succession planning in tax-exempt organizations 3
predict success in the next CEO role. These must be reviewed and acknowledged as part of developing the future CEO role requirements. Once the board has agreed upon the future CEO role requirements, these should become the core metrics against which all candidates are evaluated and developed.
Potential CEO candidates: internal This front-end work on the strategy and the CEO role allows the board to focus on the critical skills and experience needed to effectively fill the CEO position as well to perform the activities on a strategy implementation scorecard (i.e., execute on the strategy).
The board will need to determine whether any internal candidates may exist. To help the board in making this determination, a talent management program should be formally reviewed by the board at least annually. This exercise should bring to light the bench strength of the existing management team. The board can use information from these reviews to evaluate each manager in relation to the role requirements that have been identified as important for the successor CEO.
Candidates should be evaluated against the requirements identified for the future CEO position; this practice aids in identifying gaps and longer-term risk factors that can be targeted in creating tailored leadership development plans for top internal candidates.
Each internal candidate should be assessed based on an integrated view drawn from the various perspectives held by the people who have managed and worked with the individual during his or her career. This evaluation may examine such areas as an ability to assemble a top-notch staff, a capacity for strategic thinking, and a tolerance for pressure.
Potential CEO candidates: externalAt some point in the process, the board will need to decide whether to look outside the organization for potential candidates. For example, the board may determine that a key executive role (not the
CEO) should be filled by someone from outside the organization who is hired as a potential CEO candidate. This step may minimize the risk of an exodus of internal talent if an external hire is made directly to the CEO role. Getting these individuals established and reviewing their performance takes time, so boards need to consider this approach relatively early in the overall succession planning process. It takes time to develop leaders and choose the right CEO and such a crucial decision for the success of the organization should not be rushed.
The transition: on-boarding the incoming and celebrating the departingOnce the best candidate is identified, the board should address the risks he or she and the organization may face, identify any capability gaps, and plan out a thoughtful onboarding and transition process. Each situation is unique and to the extent the board can be prepared with contingency plans in place for a variety of scenarios that could occur, the transition will be smoother. Succession planning works best when it is conducted openly and transparently, both within the organization and to its outside stakeholders.
The board also will want to develop the key components of preserving and celebrating the legacy of the outgoing CEO. This assists the organization as a whole to make a healthy transition and can help solidify the outgoing CEO’s support and assistance throughout the process when the CEO knows that he or she will not be “shuffled to the side” when the incoming CEO comes on board. A retiring CEO has a wealth of institutional knowledge and experience which can be invaluable to his or her successor. However, we have seen processes when this has not been developed; in some instances the adverse impact on the successful completion of the succession planning process and incoming CEO’s on-boarding was felt long after the new CEO began his or her tenure.
©2014 Hay Group. All rights reserved
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This article was previously published in the December 2014 issue of The Executive Edition, Hay Group’s resource
on executive compensation matters. To read the newsletter in its entirety or for additional information on this
topic, please visit www.haygroup.com
Contacts
Irv BeckerUS leader, board solutions 215.861.2495 [email protected]
Bill GerekRegulatory expertise leader Board solutions – US 312.228.1814 [email protected]
Steve SabowDirector of research Board solutions – US 201.557.8409 [email protected]
Jim OttoSoutheast regional leader Board solutions – Atlanta 404.575.8740 [email protected]
Brian TobinMidwest regional leader Board solutions – Chicago 312.228.1847 [email protected]
Cory MorrowSouthwest regional leader Board solutions – Dallas 469.232.3826 [email protected]
Brian HolmenWest coast regional leader Board solutions – Los Angeles 949.251.5440 [email protected]
Greg KoppNortheast/Mid-Atlantic regional leader Board solutions – NY Metro/ DC Metro 703.841.3118 [email protected]
Christine RiversBoard solutions – Boston 617.425.4545 [email protected]
Dana MartinBoard solutions – Chicago 312.228.1824 [email protected]
Tim BartlettBoard solutions – Kansas City 816.329.4956 [email protected]
Dan MoynihanBoard solutions – NY Metro 201.557.8423 [email protected]
Marty SomelofskeBoard solutions – NY Metro 201.557.8405 [email protected]
Dave WiseBoard solutions – NY Metro 201.557.8406 [email protected]
Matt KlegerBoard solutions – Philadelphia 215.861.2341 [email protected]
Brandon CherryBoard solutions – San Francisco 415.644.3737 Brandon.Cherry@haygroupcom
Wrapping upPlanning for the succession of the CEO is critical to the health and continued success of any organization, and is one of a board’s most important (if not the most crucial) responsibilities. Developing a thoughtful and detailed process well in advance of the anticipated departure of the incumbent CEO, and making sure that the process
is followed and evolves as necessary, will be instrumental to the board in the outcome of this succession planning.
Jim Otto and Alanna Conte are consultants in Hay Group’s US board solutions practice. You can reach Jim at +1.404.575.8740 or [email protected]. You can reach Alanna at +1.201.557.8533 or [email protected]. �
