The time has come to consider leadership change in the company. Maybe it’s part of planned succession. Or, maybe the CEO is retiring, or he or she just surprised the board with a new opportunity (or maybe the incumbent CEO “just didn’t work out’). Let’s assume that the choice of a new chief isn’t a done deal, and that the board wants to do a proper job of the succession. That means designating a board “CEO search committee.” But how to do the job right?:
- For starters, designating a distinct committee of the board to manage chief executive search offers many advantages over an ad hoc or full-board approach. It shows good governance — you’re telling investors and employees that sound CEO succession is a board priority, and that it will be handled properly. Membership can be hand-picked to assure board members with time, expertise, and independence for the task. And the board can write a charter for the committee that spells out timelines, priorities and role of the committee versus the full board (and you can set a discrete budget line item for its needs). Keep committee size compact — 3 or 4 members. A big search committee proves both political and unwieldy.
- Still, building CEO succession into the portfolio of a current committee has advantages as well. Since the tasks and needs of the committee will overlap with exec pay setting, “the compensation committee is often designated,” observes Keith Meyer, CEO and board search leader for Allegis Partners. The membership will already be independent, and likely include some skills in HR and talent search. The comp committee chair is a natural for chairing the search committee, even if you’ve formed a separate group.
- With either approach, membership should be fine tuned for the role at hand. The independent chair/ lead director should also be a member, as should the chair of your governance/nominating committee. And the incumbent CEO? Not a good idea, says Meyer. The outgoing chief will have too powerful of a say, and suck all the air out of deliberation.
- All this fussing over CEO search committee membership is vital because the group is doing far more than coming up with a name. “It’s crucial for the committee to get a strategic focus on what success factors are,” notes Steve Mader, who heads strategic board development for ONPartners. What strengths and weaknesses did recent CEO evaluations reveal? What coming changes in the company’s strategic plan will push you to “lead the target” in identifying tomorrow’s ideal CEO? How will your top succession plans fit in with the rest of your executive talent development structures?
- Since even the best CEO committee can’t do the legwork itself, it sets the plan and parameters, and then engages specialists for the actual headhunting and vetting. Usually this will be an outside search firm, and the search pros we talked with advise consulting them early in the process. Even if the committee has candidates in mind, the search pros will know what questions to ask, how to dig for a deep reference check, and what realworld, current pay and benefits packages look like.
- Typically, there is never enough time for the CEO search, but a rushed project often leads to later regrets. If the current CEO announces a planned retirement, a year to 18 months is ideal to form a committee, set parameters and strategy, work with a search firm, interview candidates, and bring a final recommendation to the full board. In a pinch, the process can be done in 6 months, but that’s far from ideal. The COVID-19 lockdown has made virtual interviewing of candidates the norm, but in some ways has actually sped the process. “Now, 90 percent of [CEO] candidates are either internal or known to the board,” Meyer notes.
- Final notes on CEO search committee makeup. Assure committee members will have time to devote to the work involved — it’s more time and labor intensive than you think. Also, stock the committee with directors who will be around for a few years — no one who’s soon to retire from the board. You want members “with skin in the game, who’ll actually have to work with the CEO they select,” says Meyer.