CEO succession planning

For the good of the company, the appointment of a new chief executive should be a seamless process, rather than a newsworthy event that disrupts organisational cohesion and momentum.

When outgoing Insurance Australia Group (IAG) CEO Peter Harmer MAICD passed the baton to then CFO Nick Hawkins at the end of 2020, it was cited by some as a textbook succession. Outgoing IAG chair Elizabeth Bryan AM FAICD (who retired from the company in October 2021) oversaw the transition, and says the board embarked upon it in April 2020, after Harmer signalled his intention to retire.

Bryan says IAG had two very strong internal candidates, but the board also looked externally to benchmark those internal candidates and make sure they understood the market. “We did our search at IAG in the early days of the pandemic and so we had to think through, if we were going to recruit internationally, whether we could interview people personally, and how we felt about that,” she says. “The consequences of putting a CEO into a job that’s not quite right… it takes a long time to unwind and it creates a lot of issues in a company, particularly with senior executive staff.”

Stephen Johnston, a partner at Korn Ferry, says succession planning should be handled as a process, rather than an event. “We have a lot of experience in dealing with events — when a new CEO is required urgently and the board looks around and there’s no-one there,” he says. “Good boards are feeling the pulse of the developing pipeline and are engaged in a very active role as mentors, coaches and advisors on this topic all the time. This constant leaning into this as an organic, ongoing topic, rather than an episodic one, is probably the biggest single shift for boards to be super-effective in this space.”

Having real clarity around what’s required in the current environment, as opposed to focussing on the same position description that was used for the last CEO, was also key.

“The world is moving so quickly, there is so much adaptation required and so much kind of pivoting in strategy, that there needs to be this constant looking forward,” says Johnston. “It’s about appreciating that those requirements in the next CEO might well be different to the requirements of the current CEO, because the context is continually evolving.”

Seamless transitions

Bryan says that at IAG — and, indeed, most big companies — succession possibilities at both CEO and senior executive levels would be considered at least every year. “It’s about taking a deep look into the core individuals at the top of your organisation to see what direction their development needs to go, to enable them to be ready for the next step up,” she says. “It’s a long-term process and never-ending.”

Bryan adds that transitions involving internal candidates tend to be easier, but are not always what an organisation needs. “Sometimes an organisation needs an outside culture, a different set of experiences, a different lens on the problem, a different kind of personality and management style,” she says.

Boards need to be able to clearly articulate what they are looking for, and this can only arrived at through an iterative process.

“The relationship between a chair, some members of the board and the external search consultants needs to be very close one. It needs to be one where the board has really done its homework on what it wants because it’s very easy to write a specification that’s full of motherhood statements (but) that’s sort of meaningless.”

Johnston points out that where there is more than one strong internal candidate, senior executives may leave the organisation if they are unsuccessful in their tilt for the top job. However, companies with good succession-planning processes in place often have sufficient bench strength to cover some of those “regrettable but not unexpected” losses.

Nick Hindhaugh, founder and managing partner of Six Degrees Executive, says most boards would have some view on whether there is risk around their CEO leaving, based on poor performance or feedback. “However, with so many boards operating virtually, they are even more distanced from the executive and there could be more risk in today’s times of being blindsided with a departure.”

COVID-19 had served to keep some CEOs in their current roles, which means the local talent pool is smaller than usual. But there may be turbulent times in 2022, when Hindhaugh predicts one of two things will happen. “Either CEOs or executives will run out of puff (because of) the sort of intensity people have been under in terms of pressure. Some won’t be able to hack it or they simply want a break,” he says. “Or boards who have persevered with CEOs who have done an OK job will get to a point where they decide they probably don’t have the right leader in place after all and make the decisions they probably would have made pre-COVID.”

Successful transitions

AUSSUPER

AustralianSuper announced in July that Former Finance Sector Union official Paul Schroder would take the helm of the nation’s largest superannuation fund after Ian Silk stepped down. Chair Dr Don Russell says that in the 15 years Silk had stewarded AustralianSuper, it doubled its membership to 2.4 million and gone from $21b to more than $225b in member assets under management.

SEEK

Former Commonwealth Bank of Australia CEO Ian Narev replaced Andrew Bassat as CEO of internet jobs platform SEEK in July 2021 after joining as chief operating officer two years earlier. Chair Graham Goldsmith AO FAICD says Narev had a strong track record in public company leadership, digital transformation and strategy. “I am confident this will be a seamless transition,” Goldsmith added.

IAG

From April 2020, Nick Hawkins served as deputy CEO of IAG before taking over from Peter Harmer at the end of that year. Former chair Elizabeth Bryan says if IAG hadn’t had a CFO who was so well-equipped for the top job, it would have been a much more difficult process. “But we did, and we were able to make a pretty seamless change in the leadership of our organisation,” she says.