When Russ Reynolds founded our firm back in 1994, he knew that “bigger isn’t always better.” And so, he purposely created a boutique firm with a truly collaborative and client first culture, and with a goal of providing our clients with “high touch” service and unbiased advice. We started out in the boardroom, focusing our efforts on recruiting directors. As would later be the case with all of our practices, senior members of our board practice would lead and execute every engagement and handle all candidate interface, assessments, references, and client interaction. Russ anticipated that staying small would prove to have a big and lasting positive impact on our clients and help preserve our client service culture as the firm evolved. He was right. For the past 30 years and still today, we have consistently achieved, and often exceeded, our clients’ recruiting objectives, and have successfully maintained long-lasting and meaningful relationships with them. While we have expanded our offerings to include executive search and a variety of advisory services, board recruiting continues to be at the core of what we do.
The demand for outstanding director talent is as high as ever. This is especially the case when considering corporate boards’ ongoing efforts to maintain the right mix of skills and experience and the right balance of gender and ethnic diversity in their ranks in order to enable them to stay ahead of an everchanging world in which their respective companies compete. Often, boards encounter supply and demand imbalances for certain types of candidates they seek. That’s why it is very important that the board recruiting firm can guarantee access to any and all relevant candidates without any exceptions. That is a promise that we have continued to keep with our clients since our firm’s founding. Given our firm’s size and structure, we purposely conduct a limited and distinct number of search assignments at any given time, and our engagement review and acceptance process ensures that at RSR Partners, there is no competition for candidates amongst our clients.
Our extensive candidate sourcing network continues to expand and advance. We utilize our own database, social networking tools, and other internet-based candidate search technologies (e.g., LinkedIn, BoardEx, etc.) that have leveled the playing field between boutiques and large firms when it comes to candidate identification. All partners from all practices are engaged as well for candidate ideas. As such, we have the ability to identify most any candidate who aligns well with a given profile.
The benefits associated with partnering with us to achieve our clients’ most important recruiting objectives are no better reflected than in the continued success we have had in achieving our clients’ diversity objectives. Since 2021, 86% of our board placements were either gender and/or ethnically diverse (it’s important to point out that diversity was one of a number of criteria each of these placements met).
As a small and agile team, we are also known for our thorough and rapid kick-starts to board recruiting assignments. We have always strived to complete our board searches within four to five months. There have been times when searches have taken longer than anticipated, but we have always completed our assignments and have amassed a 100% placed candidate “stick rate” along the way.
If I had to point to one step in the board search process that we have learned goes a long way toward ensuring a successful outcome, it would be to put a great deal of thought and effort at the beginning of the process into creating the candidate profile. This candidate profile development process should be a collaborative undertaking between the board and their search firm, and it can be completed in a short period of time. It starts with reviewing the director skills and experience matrix in the proxy and interviewing each member of the client’s Board, their Chairman, CEO and, depending on the nature of the search, certain members of the executive leadership team. Interviews focus on what skills and experience are needed in the next director and why, as well as the characteristics that make for a great cultural and chemistry fit on the board. Then, we undertake a comparison of what criteria the board currently possesses and identify gaps, which in turn, helps to refine the candidate profile. It is important to note that the matrix in proxies does not always provide an accurate picture of the degree to which skills and experience reside on the board (i.e., checking the box versus specifying the strength of a particular skill or experience each director indicates they possess using a 1,2 or 3 rating.) The interview process is therefore helpful on several fronts – it provides a deeper understanding of skills and experience that all the directors contribute, determines what the board is looking for in its next director, and creates alignment amongst the board members around the candidate profile.
Before finalizing the candidate profile, we typically review five to ten candidate ideas with our client to get their feedback and confirm we are in agreement. Sometimes adjustments are made after the client has the opportunity to see how the profile on paper materializes in viable candidates. The goal being to create a profile that is both on target and realistic. So, when clients commit to undertaking our candidate profile development process, it almost always leads to a more successful outcome.
As the leader of RSR’s Board Practice for almost two decades, I am proud of our track record in assisting a wide variety of clients – from start-ups and private companies to Fortune 50 corporations – in achieving their board recruiting objectives. We look forward to continuing to partner with existing and new clients and staying true to the principles that Russ established in the early days of our firm:
We continue to be a small firm with big results.
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Carter Burgess is head of the firm’s Board Recruiting practice and a senior member of the Board & CEO Services team. As practice leader, he focuses on director searches, the build-out of entire boards, comprehensive board composition analyses, multi-year succession planning strategies, and board performance assessments for companies in a broad array of industries.
RSR Partners is a boutique professional services firm headquartered in Greenwich, CT, that specializes in helping Boards and CEOs with their most critical recruiting, selection, and succession needs. The firm was founded in 1994 by industry icon Russell S. Reynolds, Jr. The firm has conducted thousands of projects for Boards and CEOs at public, private equity-backed, and family-owned businesses across a range of industries including asset management, consumer goods and services, industrial, technology, and healthcare.
Whether you call the role Chief Supply Chain Officer (CSCO), Chief Operations Officer (COO), or some variation, someone needs to be responsible for leading all extended supply chain processes for any enterprise producing physical goods. Moreover, this person must be a full strategic partner with the CEO, CFO, and other members of the C-suite. They are responsible for the lion’s share of enterprise cost and capital spending. Historically, many organizations failed to recognize the need for a “strategic-minded” CSCO.
For the last several decades, manufacturing businesses and their supply chain leaders focused relentlessly on driving cost out of the system. This led to a massive shift in manufacturing and sourcing to lower cost regions, particularly China, in pursuit of lower production cost. It also led to consolidating vendor bases, including increased sole sourcing, in return for lower prices from suppliers and just-in-time production which drove down inventory investment requirements.
This drive for lower cost worked well when conditions were relatively stable. Customers received lower prices, shareholders owned a more profitable business with higher returns for their investment, and employees worked in a growing business with more career opportunities. What was not well recognized was the added risk the enterprise assumed. Sourcing and manufacturing in Asia lengthened supply chains and made them more vulnerable to transportation disruptions. Consolidating vendors increased exposure to supplier outages. Reliance on China increased political risk. Just-in-time manufacturing eliminated inventory which could serve as a buffer to absorb mismatches between supply and demand. Occasional disruptions in one or another of these dimensions occurred and companies scrambled to address them. Few had risk mitigation plans in place ready to deploy, and most were treated as one-off events. Then the covid pandemic hit, which clearly exposed the inherent risks companies had assumed in adopting the low-cost supply chain strategies of the last 40 years. While the drive to low cost was a “strategy” many pursued, companies did not think strategically about the potential unintended consequences.
Companies should not think of the pandemic as a once-in-a-century event and revert to business as usual. Disruptions have been, and will continue to be, a fact of life for manufacturers. The McKinsey Global Institute has studied the history of supply chain disruptions and their effect on business results. They estimate companies lose 45% of one year’s EBITDA to supply chain disruptions over the course of a decade. Historically, corporate responses to supply chain disruptions have been reactive. Recent disruptions have clearly illuminated the imperative for creating and maintaining operational resilience. What does this mean for the next generation of CSCOs?
Apart from the leadership and strategic skills required of any C-suite executive, perhaps the most important skill required of today’s CSCO is that of an underwriter. Underwriters, be they insurance, investment banking, commercial banking, or other, evaluate the risk involved in a particular activity, asset, or person and set a “price” appropriate to the risk. As we saw during the pandemic and its aftermath, most CSCOs failed as underwriters. They did not appreciate the risks they were bearing and had not taken necessary steps to “insure” against those risks. As a result, supply chains broke for extended periods—inventory did not arrive when needed, factories closed, customers did not receive their orders, and consumers saw bare shelves and empty lots.
As we have seen over the last three or four years, most companies were unprepared for pandemic risk, geopolitical risk, weather risk, et cetera, much less having the compounding effects of these risk occurring simultaneously. Insurance underwriters tend to think of risk along two dimensions: frequency (how often a loss is likely to occur) and severity (how expensive a loss is likely to be). Low frequency, high severity risks are the most difficult to predict and insure. To protect against these catastrophic events, insurers often purchase catastrophe coverage to protect themselves from existential losses. Manufacturers had not understood the extent of their exposure to “catastrophes.” Consequently, they did not have risk mitigation measures (insurance) in place and suffered greatly for it as suppliers in global markets shut down and transportation infrastructure became clogged.
To mitigate these very real but previously poorly perceived risks, many are now rethinking their global supply chain strategies with an emphasis on creating supply chain resilience. This has included reshoring and near shoring critical manufacturing infrastructure; deploying digital supply chain solutions to speed information flow and decision making; diversifying sourcing partnerships; and investing in critical inventory. Manufacturers are now actively assessing the broad range of integrated supply chain risks they face, quantifying the exposure they have to disruption, and making the necessary investments and other actions to mitigate these risks. This requires new skills on the part of the CSCO and full partnership in strategic decision making with the rest of the C-suite.
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Don McMurchy is a senior member of the Industrial practice, driving execution across a broad range of senior leadership roles for clients ranging from start-ups to Fortune 50 enterprises. Based in Cleveland, his engagements are typically continental in scope with additional experience in Asia and Europe.
RSR Partners is a boutique professional services firm headquartered in Greenwich, CT, that specializes in helping Boards and CEOs with their most critical recruiting, selection, and succession needs. The firm was founded in 1994 by industry icon, Russell S. Reynolds, Jr. The firm has conducted thousands of projects for Boards and CEOs at public, private equity backed, and family-owned businesses across a range of industries including asset management, consumer goods and services, industrial, technology, and healthcare. To learn more about RSR Partners, click here.
Peter Drucker was a wise sage. Many companies and even some industries have evolved to greatness thanks to his contributions to management thought. Despite his gifted prescience, Drucker could never have imagined the current environment, nor the unexpected journey through which Covid has taken each and every business. Still, a quote from Drucker rings true: “The greatest danger in times of turbulence is not the turbulence. It is to act with yesterday’s logic.”
Every business leader seeks to understand the current environmental factors and the future of the marketplace. To that point, operating plans consistently open with a view of the present market conditions and a prediction of those to come. It took a pandemic to teach us that our clairvoyant skills are lacking. Even now, we have no idea if our economy is heading into hyper-inflation, recession, or a soft landing. In a time that Drucker refers to as “yesterday,” the conventional wisdom among the wise CEOs would have been to move to a phase of business preparation, anticipating the challenges of the market situation to come. Let’s call this “managing according to maintenance objectives:” optimizing the chances for retention of current state with plenty of emphasis on contingent planning.
In essence, lifeboat management.
I offer here my thoughts on a different prescription. Keeping with the nautical metaphor, I appreciate the words of Union Naval Admiral Farragut when he said, “Damn the torpedoes!” Are there any lessons to be applied from the fog of war to the current fog of business? I speculate that today’s CEO Farragut would state unequivocally that success is not about survival or maintenance management. Rather, he’d call it seizing greater initiative while expecting inevitable risk.
Having the good fortune to know many great CEOs who would emulate Farragut, I perceive a common denominator among them. It is an insatiable, often unassailable drive to achieve breakout growth for their business, environmental factors notwithstanding. Their passion is palpable, sometimes in visible relief and sometimes not, but always motivating them to find seams and ingredients and synergies for sustainable surges of growth. To many casual witnesses, the business aspirations are almost unimaginable. However, it’s precisely the CEO’s imaginings that seem to prompt the urge to break through the fog, to lead with abandon.
When was the last time you witnessed someone whom you’d describe as an executive who leads with abandon?
In observing these CEOs and their teams, I have come to recognize some common elements that I’ll call the “formula.” These include some leader qualities and some new items of process thinking. These include: a spirit of adventure; a fresh way of expressing vision; a continuous attitude of nimbleness; an approach to embedding strategy as “water cooler” conversation; and a more flexible way to think about organization structure to meet market needs and opportunities.
The Courage to Pioneer
Serving as a business leader in today’s environment is tricky. The most effective CEOs seem to exhibit a pioneering spirit, like Paul Bunyan’s courage to wield a mighty axe for cutting new paths ahead. And it isn’t just a market share strategy in the minds of these few, but a desire to drive demand, to expand markets, to capture much more than their fair share of growth in categories, markets, and channels. Despite the reality of tightening/high-interest money, markets full of ambiguity, and the sequential pressure of business targets that keep approaching at high speed, conservatism does not rule among the best in breed, often called “pacesetters” in today’s lingo.
I see new shoots of growth among many companies, largely because their CEOs are continuously acting in a contrarian fashion compared to competitors. This behavior often includes rapid refinements in market and channel strategies to secure fresh growth in adjacencies, digital initiative to reach new customers and find new supply chain efficiencies, a redirecting of investments from over-mined markets into new product and new market innovation, rethinking the diversity of the business model to capture new opportunities through added services and e-commerce, and even nimbly and rapidly partnering with other companies to gain resources needed to tackle previously inaccessible customer needs, or to create new needs that haven’t yet been articulated. Budgets in some of these progressive businesses are also being shifted from process improvements to commercial innovation.
These pioneer CEOs are taking advantage of market pressures that slow some competitors. As such, their enterprises can leapfrog to future state.
Destiny and Destinational Planning
To many of these great executives, the most significant current question is not “how?” but “what?” That’s to say they often refine and sharpen their view of “what” the future looks like. They have full conviction in the capabilities of their teams and companies in determining their own destiny. Forget about incremental growth plans. Their thinking is not grounded in a cement mentality reflecting the business position of today. They formulate a vision of their business’s destination for tomorrow, more specifically, the overall objectives for two or four or even more years down the road. And they are not afraid to refine along the way or to think bigger if so inspired. Their process for planning and action is based on the “destinational” vision: a longer-term deliverable and a working backwards to define intermediate milestones as well as the related hurdles of consequence along the way.
Once that rock-strewn path is determined, then the focus of attention becomes about resourcing, i.e., what resources do we need to eliminate the obstacles? The tactics of execution spill out from there, and always with precision in mind.
Agility and Flexibility
I’ve alluded to the need for many businesses to undertake occasional refinement/continuous improvement. That’s probably a euphemism; most companies these days need much more than refinement, they need overhaul. Just ask a banker how their industry is prepared for challenges in 2023 and 2024. You may see some uneasy stares. Corporations and even small companies mired in entrenched systems, conventions, and processes rather than market foresight for the future, will likely begin to feel rapid decay over time.
Recently, I spoke at some length with two very senior operating partners at a successful and prominent middle market private equity shop in New York City. Their stature and growth suggest they are big thinkers and unusually thoughtful. That was quickly borne out in the conversation which was a by-exception dialogue, meaning we only discussed bold thinking for an hour. As we traded perspectives on the distinctions between today’s good CEOs and those who are truly great, we continued to circle back to their overriding hypothesis. The best CEOs at this moment in time are those who demonstrate “clear ability to pivot.” This needn’t be expanded upon at this juncture, as it is the fodder for another post, but ponder the point and consider how it applies to the strategy discussions around most of today’s boardroom tables which appear sleepy in contrast.
One last point on pivoting. I have a fervent view that companies today must have something called “organizational elasticity.” During the intensity of Covid, we all heard how business cultures need “resilience.” But I see resilience as an ingredient of foundation, namely, an ability to withstand unusual and extreme pressures.
“Elasticity,” on the other hand, is more about flexibility and the rubber-band stretch that a leadership contingent and their teams can withstand, bend with, and rebound as new space is explored and tested. The pioneering I have highlighted cannot be undertaken unless the organization has the mental preparedness and curiosity to peruse new forks in the road, to make some probes of reconnaissance, and to recover to a stable track if the diversions prove unproductive. Organizational elasticity requires all in a company to understand and agree to the attendant nimbleness of the journey. Change that finds a more open and faster-lane approach should be embraced. Rigidity should be institutionalized in mission-commitment, core values, and collaborative interest, not in growth initiatives, organizational dynamics, or processes.
The Compression of Strategy
The best CEOs are redefining strategy. In a classic sense, strategy has normally meant an articulation of direction for the long term, indicating dimensions of both azimuth and time. I’ve already addressed direction in the pioneering sense. But we now find highly successful CEOs and leadership teams who have compressed the strategic timeline into more tactical timelines. They ask questions like, why should this initiative take 3 years? Why can’t we achieve the same course correction in 3 months?
Incidentally, when was the last time the company reported upon the achievement of the long-term objectives that it set forth 5 years earlier? What’s the purpose of a long-range plan anyway, other than some vague hopes of where we seek to be in a few years? There’s nothing wrong with that, except it’s fictional when companies apply the metrics and objectives that they really don’t expect to discuss at the end of the journey. I’ve already addressed that topic in the explanation of destinational planning.
Organizational Implications
We all have seen a variety of corporate org charts that generally depict conventional details like seniority, pecking order, and lines of responsibility. Such mappings are not unimportant. “Org Charts” in my humble opinion are soon to be artifacts of past companies and cultures. Those leaders who are maneuvering through the fog these days are doing so with gusto, and most are thinking of their organizations as competitive teams, not silos and compartmentalized ownership and reporting lines. Great teams think about overall team objectives first, recognizing they have a variety of star players to carry the ball, and the teams make the distinction between who’s on the field (or the “floor”) and who’s on the bench, and sometimes the substituting happens at a moment’s notice depending upon the tenor and sway of the game’s score and the intuition and judgment of the coach.
Which makes you question: how do such companies keep straight their HR design and structure?
The future-leaning answer is they don’t, primarily because their teams are organized in a fluid fashion around the strategic growth issues of their company, not around units, functions, and roles. Think project and program management, for example, with constant asset deployment and redeployment. There’s a necessary fluidity required to stay ahead of market circumstances to achieve aspirational objectives. More to come on this very critical org piece in an upcoming post. Drucker was not only clairvoyant in realizing the danger of “yesterday’s logic,” but he was giving a clear warning to the hidebound CEOs who think that lifeboat or playbook management is the key to success. The very best of the pacesetters are making up some things as they go about the business of working to achieve the unimaginable. Managing a company in a dynamic foggy market is the “Wheaties” of today’s most athletic and most organizationally ambitious CEOs.
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Alan Renne leads the firm’s Industrial practice and is a key member of the firm’s Board and CEO Services team. Alan specializes in helping companies build competence and effectiveness within their leadership teams and at the board level. He has advised numerous organizations and C-Suite executives on leadership development, succession planning, and organizational design and development.
RSR Partners is a boutique professional services firm headquartered in Greenwich, CT, that specializes in helping Boards and CEOs with their most critical recruiting, selection, and succession needs. The firm was founded in 1994 by industry icon, Russell S. Reynolds, Jr. The firm has conducted thousands of projects for Boards and CEOs at public, private equity backed, and family-owned businesses across a range of industries including asset management, consumer goods and services, industrial, technology, and healthcare. To learn more about RSR Partners, click here.
Much has been written and debated about CEO succession. The pandemic has taught most companies that succession is a heavy-lifting exercise when it comes to business continuity. Boards are increasingly concluding that the full weight of succession planning rests squarely on their shoulders, which leads to the critical question that every board must answer: promote from within or search externally? Executive search and consulting firms, including ours, are often engaged to help boards resolve this complex situation, but the inclination to conduct a search may sometimes be premature. Having completed over 1000+ assignments for Boards and CEOs over the past two decades, we wanted to share a few observations when planning for the selection of your next CEO.
Internal or External?
There is no solution that applies to all situations. Given the extraordinary dynamics of today’s marketplace, one might argue that finding a CEO with the needed agility calls for assembling the broadest internal and external group of candidates possible. However, our conversations with many seasoned Nominating & Governance and board Chairs (“Chairs”), who are at the center of CEO succession, have shown that this is not necessarily the case.
The consensus seems to be that knowledge of the business, people, and its culture trump almost every other consideration, and thus an internal candidate is strongly preferred, especially when the business is on an upward trajectory. Many feel that deep knowledge and intimacy of the business can provide quicker impact with reduced risk of failure and that consideration of outside candidates for calibration should only be done as a very last resort, and when the CEO succession planning process has failed.
Many reasons exist to recruit or vet outsiders, such as the need for strategic or cultural changes, a requirement for specific expertise in dealing with unanticipated market challenges, activists, or a merger. These occurrences notwithstanding, most boards realize an outsider will take extensive time to assimilate and consolidate as needed. Even proven successful CEOs who have already demonstrated great learning skills still take time to settle in before they create an appreciably positive impact.
Therefore, while it may seem counterintuitive to our own business model, we encourage our clients to go through the process of deep self-reflection and succession planning regularly. This preparation may avoid the need to launch a rushed CEO search later. The process itself is very revealing for most organizations, and boards are recognizing that preparation is the key to optionality.
Engagement
CEO succession is a passionate and delicate topic. It involves changes and sometimes challenges that affect leaders who are considered to be the very best in commanding complex organizations. But for the boards who assume this monumental responsibility, it need not be a cause for angst. With a commitment to diligent planning, extensive engagement with candidates, a high level of candor in discussion, and an enlightened view of the opportunities and resources that present themselves to the company, succession planning can be a smooth journey, and even stimulating. When boards come to the point of treating succession as a non-episodic issue that deserves constant reflection and attention, the organization will find a more secure position for the exciting future ahead.
In the past, boards have overly relied on the perspective of management to develop, manage, and provide solutions for succession planning. With CEO tenure trending towards 5-year terms, boards need to own the responsibility and develop a perspective that is integrated but independent from management. One of the best ways to subdue unease around the topic is to make CEO succession planning a board priority and a regular topic of discussion. Most public company boards keep CEO succession as a standing agenda item but at private equity backed or family-owned companies, there is certainly room for improvement. By continual engagement on the topic on a formal level, and even under less formal conditions, boards can avoid being overwhelmed by the planning and enactment of succession plans. It is critical that Chairs start the conversation and be frank and open. Once they start the conversation, others on the board will engage.
It also helps to acknowledge and appreciate the sensitivities around CEO succession planning. Few changes in a company can affect such a breadth of internal and external constituents as a change in CEO. It is a critical event, shrouded often in unspeakable sensitivity. Framing the discussion as a neutral one can help directors open up. No CEO likes thinking about being replaced, but by setting expectations early that tenure is fixed, the topic is less likely to be taken personally.
A piece of the ongoing puzzle and dialog around CEO succession is building the competency agenda for the CEO, known as the “success profile.” For several years, we at RSR Partners have advanced the concept of “stretch versus fit.” For example, some boards aspire for greater growth trends and feel that goal can be achieved with some modest tweaking to strategy and culture which the incumbent CEO is unwilling or unable to embrace. Generally, while boards may have no regrets about the past, many have more expansive and aspirational visions for the future. As it relates to the “spec” capabilities required of the next CEO, they question whether to stay squarely on course or to drive change. Invariably, boards harbor some hopes and dreams that a CEO change will provide opportunity for added business propulsion, so they look for both steadiness and value-adding creativity in the next CEO.
My longtime friend and colleague, Alan Renne, who is a senior member of our Board & CEO Services practice and Head of our Industrial Technology team, has commented that “what the pandemic has taught most companies is that both culture and strategy are symbiotic in a sense, although neither can stand still under the pressure of unpredictability, which we’ve seen through the Covid period. Hence, we all hear the constant chatter about how companies require leaders with agility, nimbleness, resilience, etc. The point related to CEO succession is that the ‘stretch’ requirement can feel like a moving target since the marketplace is not static. So, boards must continually engage in the discussion about the CEO spec in the context of possible changes in strategy and culture, and therefore make in-flight course corrections on an ongoing basis.” Alan’s observations are spot on, and it is often during these continual discussions, that inspiring and innovative solutions to the CEO succession issue present themselves.
Bench Strength is Key
Finding an organization’s next CEO should be inextricably linked to understanding the capabilities and skills needed for success and filling those gaps at the C-Suite level. Succession planning goes hand in hand with talent reviews and leadership assessment, which help reveal opportunities to develop rising stars for succession consideration. The Nominating & Governance Chair’s mandate to ensure effective governance means that Chairs need to have a thorough understanding of the talent within the organization. They are expected to know when it makes sense to go to the market for the skills and experience that are needed, especially within the bench levels, so chairs are spending more and more time identifying and getting to know future leaders below the C-Suite.
Stars often rise from the “minor leagues” and good oversight on their development is key, especially as the CEO specification continues to evolve. Issues of executive development and retention go hand in hand, and boards should have their sleeves rolled up in these discussions.
“One of the most delicate topics today in leader development relates to promotion and rotation,” Alan states. “In many cases, companies are eager to keep great talent rising, challenged, and filling development gaps. Consequently, top players are often continuously pushed ahead to the next bigger job, but sometimes too quickly. High potential leaders need time to formulate strategies, build plans, execute, refine, and manage for a period that demonstrates sustainable success. Moving leaders too quickly can short-circuit that process and even disrupt business effectiveness. Boards should engage early in the leader development process because they have the seasoning of experience to spot these things and can offer valuable advice that will benefit their CEO succession plans.”
Retention and motivation of executives should also be high on the radar screen, especially considering the new phenomenon of “opting out,” discussed further below. Some Chairs have admitted that CEO succession can also be a challenge since it can be hard to retain A+ executives in the C-Suite if the company is unable to offer the compensation and flexibility of larger operating portfolios. If retaining and motivating talent within management is a priority, it should tie very closely into succession planning.
The “Siren Song” of Private Equity
Private equity firms are more actively and aggressively recruiting high potential talent from public companies. “There is a war for talent,” states Thames Fulton, a senior member of our Board & CEO services practice. “We often counsel boards so they understand and can deal with these incursions to their executive teams. We have been asked to educate the high-potential corporate executive who unknowingly thinks the grass is greener in private equity, thereby helping a board to buy some time in their succession planning.”
Conversely, there have been some great executives coming out of small and mid-cap companies because their leadership model is lean and therefore very hands-on and experienced. Large cap companies are starting to recruit those executives. “We spend significant time with our small and mid-cap clients, strategizing on how they can build their leadership bench in a way that earns loyalty and commitment from their teams,” adds Thames.
Competing for leadership talent in this environment can be especially challenging for organizations with limited bench spots. Boards must get creative about generating roles to provide opportunities for succession. There are ways to stimulate succession preparation with retention and development strategies. Dovetailing the creation of those roles with efforts to fill gaps in the competence between the bench and CEO can significantly impact an organization.
The Nexus of Board & Management and the “Opting Out” Phenomenon
The CEO role has always carried with it great cachet – authority, visibility, power, influence, prestige, impact, and wealth potential. In recent years, as terms like “servant leadership” and “shareholder capitalism” have occupied rightful places in the vernacular, the CEO role has become ever more complicated. More importantly, the pandemic circumstances over the past year have placed a glaring light on the CEO role. It is an extraordinarily intense and often grueling job, fraught with gut-wrenching decisions, overwhelming workload, tricky management and leadership challenges, and high pressure deadlines. Consequently, boards need to have intimate insight into the thinking of their future succession candidates. This can be incredibly important when gauging the bench’s proclivity to carry the CEO title.
In our discussions with the bench strength of today’s public companies, especially those seen as the best and brightest, we see an emerging phenomenon. Many are now seeing the CEO role as the great heavy-lifting job that it is, and they conclude that the associated sacrifices are too great for the potential rewards. In their minds, they are choosing to opt out in lieu of other career trajectories, including private equity backed opportunities. This is just one example of how boards need to know about personal decisions, especially as they consider high potential candidates for succession, which begs for deeper interactions between boards and the promising talent in the management ranks.
“When addressing clients’ CEO succession needs, we often overlay our board and executive search processes,” comments Gretchen Crist, Head of our firm’s Consumer Goods & Services practice. “This is an advantage during CEO succession projects because we can operate at the nexus of boards and management. We appreciate the board perspective and can integrate intelligence on proficiencies and personal motivations from the front lines of the business.”
Moreover, the succession planning process should be encountered as a moving target that never stands still – because markets, companies, and people are ever-changing. As such, the regularity of discussion between board directors and management should likewise increase. The Chair’s role is to help facilitate those conversations. Some Nom & Gov Chairs have occasional one-on-one conversations or visits with key members of management, while others have 8 – 10 executives attend each board meeting, and some attend dinners, on a rotation. Developing trusting relationships with members of management is good for both knowledge and retention.
Strike a Balance
“Succession planning has evolved into a rigorous process,” concludes Alan. “Our clients look down many levels into the management ranks to identify star talent. We are assessing their leadership abilities, putting their development plan in place, conducting a risk analysis around who might be poached, and benchmarking against external candidates and competitors. The goal is for the board to have transparency around who will be the next CEO if everything goes according to plan, and, as is often the case, if conditions change, to be sure to have a current CEO spec and a competency structure ready to go, should a search be unavoidable.”
“There also needs to be some flexibility and nimbleness,” adds Gretchen. “Clients do not need their succession plan to be perfectly buttoned up. It is fluid and dynamic. It’s important to get the dialog going and be open minded as the conversation evolves.”
There is so much to discuss during the CEO succession planning process, that it is natural and cyclical for the board to continually address the topic. Timing, the methods of evaluation of candidates, the development plans to help high potential executives build competencies, the regular review of the CEO spec, as well as a periodic revisiting of those stretch topics – like strategy and culture – are crucial to be sure that strong candidates of today have the skills to meet the expectations of tomorrow.
The clock is ticking… and boards need to be prepared when the time comes to make the best and most informed decision possible when selecting their next CEO. There is no more important responsibility for directors in this new world of stakeholder capitalism than CEO succession.
We are here to help you get it right.
About Our Board & CEO Services Practice
Our Board and CEO Services team partners with CEOs and boards to understand issues, assess opportunities, and strategically advise to ensure sustainable growth strategies are optimized. We are committed to executing an action plan that addresses sensitive and complex leadership needs and ensures clients are well positioned for the future. RSR offers trusted advisement rooted in years of experience and market knowledge. We excel at optimizing board and CEO effectiveness through transformative thinking about structure and operations. This helps us to engage closely with clients to drive greater accountability and enhanced performance. Our practice group leverages RSR Partners’ renowned experience in corporate governance with the firm’s industry and human capital consulting expertise to create an integrated and seamless approach. The range of services we provide to boards and CEOs include:
Board Services
CEO Services
RSR Partners is a boutique professional services firm headquartered in Greenwich, CT, that specializes in helping Boards and CEOs with their most critical recruiting, selection, and succession needs. The firm was founded in 1994 by industry icon, Russell S. Reynolds, Jr. The firm has conducted thousands of projects for Boards and CEOs at public, private equity backed, and family-owned businesses across a range of industries including asset management, consumer goods and services, industrial, technology, and healthcare. To learn more about RSR Partners, click here.
And why the CEO can no longer go it alone.
The COVID crisis interrupted what was likely to be an unprecedented movement at the CEO level in 2020. January 2020 set a record in the US for the most CEO departures in one month (219 according to the Business Insider), setting pace to eclipse 2019 when a staggering 1,640 CEOs left their positions worldwide (according to Challenger, Gray, & Christmas). However, when the extent of the COVID crisis unfolded, many of our clients paused sweeping changes at the CEO level in order to exhibit stability and trust to their shareholders, customers, and to their employees.
It goes without saying that the remainder of 2020 put CEOs – new or experienced – under great pressure. CEOs were not only dealing with the COVID pandemic, but with social, economic, and political uncertainty. This type of unsettled environment tends to either accelerate transformation or exacerbate imperfections. Throughout 2020, while many of our clients evolved, innovated, and thrived, we also witnessed many recognize that their CEOs lacked some of the capabilities needed to survive, and, even more concerning, flaws in the wider C-suite leadership team supporting the CEO. In fairness, 2020 raised the bar in terms of what CEOs and their C-Suite teams need to be ready and capable of handling. Not every leader possessed the toolkit.
While much remains uncertain, organizations and boards are now acting on the lessons they learned from last year and are primed to enact transformation at the C-suite level. In particular, CEO succession planning – whether near or long-term – has rebounded. We are seeing an appetite to recruit CEOs who can lead transformation, and, for our clients who experienced growth in 2020, a strong desire to raise a CEO successor within an organization to ensure the successor will hold true to the values and strategic course that made the organization successful. This why, now, organizations and their boards are redefining the capabilities that are expected from a CEO and the C-Suite team, and these leaders certainly have their work cut out for them.
Expectations of Today’s CEO
What is expected of a CEO in today’s world? Broadly, CEOs are required to (1) set and articulate a vision; (2) engage with their employees and workforce; (3) collaborate intimately with the board on strategy and other stakeholder priorities; and (4) develop a consumer-driven marketing and sales plan that will achieve growth while maintaining an operational structure that yields profitability. These are very high level and palpable statements, but our clients have very specific ideas about which duties the CEO must actually perform and be personably accountable for.
Vision
There is a now clear requirement for CEOs to be able to articulate the organization’s purpose and mission with heightened clarity and to engender confidence and trust when conveying this vision, reassuring employees, customers, and shareholders. A vision is what helps keep organizations focused – during stressful and complex times as well as during periods of growth and success. Setting forth a vision sounds simple, but it is rarely as straightforward as it seems. No one has a crystal ball. However, in the wake of 2020, there is little patience for a CEO who struggles to set a path and is only focused on the short-term. In addition, an inability to communicate a vision in a way that galvanizes and motivates is an ineffectualness that organizations will be unable to overlook going forward.
Employee Engagement
CEOs and their C-Suite are now on the front lines of building employee loyalty and ensuring employee satisfaction teams. They can no longer be disengaged and allow managers to handle what is happening personally for employees at other levels of their organization. CEOs are expected to take deliberate measures to understand and address the emotional and motivational impact of the COVID conditions on the workforce at large and meet employees’ concerns and emotions with empathy and understanding. CEOs and their C-Suite team need to have some awareness of the familial challenges faced by their employees. There is now a greater emphasis on workforce oversight generally, including “work from home,” remote, or hybrid capabilities, and heightened environment, health, and safety standards from an operational perspective. CEOs need to be thinking ahead about how to cross-train for contingencies and emergencies and reassess labor and workforce policies and programs to be efficient, effective, and considerate of employees’ time and interests. Furthermore, employees and stakeholders (and consumers – see below) are looking to CEOs to at least demonstrate awareness, if not champion, a message of social change on issues of race, gender, justice, and equity. Studies have shown that employee satisfaction increases productivity and innovation, and helps organizations retain top talent – which, as discussed further below, is even more of a priority for the CEO than in the past.
Board Collaboration
Organizations increasingly expect their CEO to be intimately and regularly engaged with the bord of directors. Specifically, on CEO search assignments, clients ask for executives who want and have significant board exposure. CEOs now participate with the board on discussions and directions related to the more far-reaching issues of stakeholder capitalism and the related environment, social, and corporate governance issues – including rethinking and redefining the organization’s diversity, equity, and inclusion strategy. Consistent, regular communication with the board and external constituents, such as shareholders, and with financial services providers, is expected to be managed personally by the CEO. CEO candidates also need to be prepared to demonstrate capital allocation experience that increased returns, enhanced performance, and perpetuated the culture and values of their organizations. They also need a solid knowledge of board governance and board leadership. The interaction and relationship between boards and their CEOs is now deepened and significantly heightened.
Consumer-Focused Growth & Optimization
Growth and optimization could probably be two separate capabilities, but it is worth discussing them together since they are so intertwined and important to profitability. The COVID-19 pandemic and the upheaval of 2020 taught many organizations that they need to be extremely strategic about their spend and investments and ready for disruption at any time. CEOs are sharpening sales and operations planning capabilities and improving forecasting and planning processes and tools, as well as enhancing vendor relationships and related collaboration. At the same time, boards are now requesting a high-level review from the CEO regarding opportunities for the sustainable organic and inorganic growth of the business. For many organizations, this means CEOs are managing the unprecedented acceleration of digital transformation through the supply chain and into the customer markets and channels. This is complicated by the recent trend of consumer concern with the ecological impact of their purchases and with the corporate philosophy and social positions of those businesses and CEOs. This results in an intense rebuild and refinement of the operational excellence toolbox to advance the lean journey and requires a sapient brand and marketing strategy. Plus, all of these decisions should now be made under the assumption of ambiguous market conditions, an accelerated timeframe, and increased cybersecurity risk.
Why the CEO Can’t Go It Alone
If this seems like a tremendous amount of expectation and pressure for a CEO – it is. And everyone seems to recognize this. However, admitting that the CEO role has evolved in an extraordinary way in a short period of time does not necessarily change our clients’ point of view of what they need; especially now that we have all experienced disruption first-hand and have seen some leaders rise to the occasion in equally extraordinary ways. We instead often counsel our clients to take a very close look at the C-Suite team that is already in place, assess strengths and weaknesses, and addresses gaps – because ultimately the CEO will need to be able to profoundly trust their team’s capabilities, judgment, ability to execute, and ability to deliver results.
To that end, we often end up searching for CEO candidates who have the ability to harness the power of their C-Suite teams, which is a unique skill in and of itself. There seem to be two factors that contribute to a CEO who constructs a powerhouse executive leadership team: (1) an ability to regularly reassess the leadership competency model for the organization, and (2) a believer in systematic succession planning.
Reassessment of Leadership Competencies
Assuming that at a minimum the C-Suite supporting the CEO has the experience, skills, and characteristics necessary for each specific role, the CEO must also mobilize these leaders to tap their creative spirit and work together on innovation strategies and growth planning. This requires each and every executive to demonstrate grit, resilience, and agility in their respective roles. The CEO will need develop a culture that embraces technology, digitization, and calculated risk in every leadership vertical. The C-Suite team will likely look to the CEO to cultivate this environment and enable change management. Therefore, the CEOs we have seen spend considerable time thinking about the leadership competencies of the individuals that makeup their C-Suite and encouraging those competencies experiences more success because they have faith in their support system. Importantly, it is through this process CEOs can develop meaningful relationships with their teams since there needs to be frequent listening and feedback sessions. This is a great way to build loyalty and retain top talent. And this is not just a one-time exercise – CEOs will need to continually reassess and plan for how they address the leader competency-building agenda for the future as the capabilities and traits needed from their leadership team adjust to the latest market, social, and political trends.
Systematic Succession Planning
While the above exercise will contribute to the CEO’s talent retention strategy, organizations still need to develop extensive succession plans, particularly with the C-Suite bench. Boards have traditionally taken a significant interest in CEO succession planning, especially in light of the aforementioned statistics, but in today’s environment, CEOs must actively involve themselves in succession planning for every C-Suite role – whether it is a long-term plan or for emergent circumstances. Just leaving one of these positions vacant for an extended period of time can irrevocably harm the success of the CEO by drawing attention away from any of the CEO’s other responsibilities. It is also important for CEOs to have a thorough understanding the talent that is being developed and is ready to step into various roles, as well as the impact the inserted talent will have on the chemistry and skillsets already found in the existing C-Suite.
In short, building a high performing executive leadership team is the number one factor to the success of the CEO. Deprived of a C-Suite team with the relevant leadership competencies, CEOs will shoulder excessive expectations and be overburdened by the tactical elements of their job description. For organizations to sustain and thrive through times of disruption and for generations to come, succession planning must be a priority for the board and CEO. As CEO recruiting and succession planning heats up in 2021, we’ll be putting forth the CEO candidates that possess the integrity to trust and build their leadership teams.
About Our Board & CEO Services Practice
Our Board and CEO Services team partners with CEOs and boards to understand issues, assess opportunities, and strategically advise to ensure sustainable growth strategies are optimized. We are committed to executing an action plan that addresses sensitive and complex leadership needs and ensures clients are well positioned for the future. RSR offers trusted advisement rooted in years of experience and market knowledge. We excel at optimizing board and CEO effectiveness through transformative thinking about structure and operations. This helps us to engage closely with clients to drive greater accountability and enhanced performance. Our practice group leverages RSR Partners’ renowned experience in corporate governance with the firm’s industry and human capital consulting expertise to create an integrated and seamless approach. The range of services we provide to boards and CEOs include:
Board Services
CEO Services
RSR Partners is a boutique professional services firm headquartered in Greenwich, CT, that specializes in helping Boards and CEOs with their most critical recruiting, selection, and succession needs. The firm was founded in 1994 by industry icon, Russell S. Reynolds, Jr. The firm has conducted thousands of projects for Boards and CEOs at public, private equity backed, and family-owned businesses across a range of industries including asset management, consumer goods and services, industrial, technology, and healthcare. To learn more about RSR Partners, click here.
Few would argue that we are now living in a VUCA world. The acronym was coined by the U.S. Army in the 1990’s to describe the post-Cold War world (volatile, uncertain, complex and ambiguous). When external and unforeseen forces, such as a national emergency and the COVID-19 pandemic, cause a misalignment in an organization, boards and CEOs must rapidly adapt their strategy, processes, and people, around the evolving needs of their customers. Organizations that are agile and able to respond quickly will be primed to outmaneuver their competition and create a new future in which they can survive and thrive.
One of the most important and highest risk groups of individuals in our business ecosystem are boards of directors. We have been in close communication with our clients these last few weeks to support them as they plan to mitigate disruption at the board level. Based upon the actions of many clients, we are sharing a few takeaways that all boards can consider when navigating these uncharted waters.
Consciously Aim to Protect Culture and Chemistry in the Boardroom
A majority of our clients have opted to conduct their upcoming board meetings virtually, and some boards of prepared and progressive companies are considering virtual annual meetings. If in-person board meetings continue to be disrupted, it will be important for board members to exercise some of the best practices developed by successful virtual teams, such as setting a clear meeting agenda and agreeing on rules of engagement and discussion.
It is also key for board members to heighten their communication skills and emotional intelligence. If ever there is a time to over-communicate and ensure empathy is factored into decisions, it is now. Keep the lines of communication open with all board members. The Lead Director or Chair is regularly speaking with the CEO and possibly the Chairs of the committees (if actionable work is being done). However, board members can sometimes be the last to receive news. To ensure the culture of transparency and engagement remains top priority, make sure all board members are receiving timely information and kept in the loop on what is happening. Further, it is reasonable for boards to expect CEOs to provide daily (or more frequently) dashboards of key performance indicators and other news, so that communication remains up-to-date.
The robust discussions and the head nodding in agreement is lost, but the Lead Director can take a moment and describe what they are observing (Such as, “I see a lot of heads nodding in agreement but we will pause for questions in a moment.” Or “I see a number of people looking anxious to chime in. Please be patient and I will call on each of you.”)
Trust, transparency, and accountability can quickly erode inside a boardroom during a crisis. It is imperative for the Chair and Lead Directors to put a road map in place to ensure board effectiveness and impact while preventing self-interests from emerging. Conflicts are more difficult to resolve in boardrooms when directors do not have the necessary face time for clearing and resolving differences of opinions. How the internal board dynamics at BP quickly eroded during the Deepwater Horizon spill is a reminder of what could happen to those companies who are slow to respond.
Practice Using Technology
Some public company board members may not be adept at utilizing technology to attend meetings or engage in discussions virtually. It’s important to minimize discomfort and embarrassment by encouraging board members to practice or test their virtual capabilities ahead of meetings. Boards should have technology teams on-hand to equip and prepare directors and help troubleshoot technical issues. Directors should also practically prepare for virtual meetings – likely much longer than the telephone committee meetings they typically experience. Now is a good time to send your board members reminders of telephone etiquette. It may seem obvious but suggest that they prepare a pitcher of water or a pot of coffee and to have snacks readily available so they can remain engaged with the cadence of an audio or video conference. These types of little things can make a long meeting experience much more productive for those on the other side of the call. And remember to be near a power outlet and to use your mute button. Any distraction takes away from productive dialogue and critical decision making.
Minimize Any Potential Succession Disruption
Most management teams have developed contingency and succession plans for times like these. However, as the shock to the economic system is not fully known, it is imperative that boards take the time now to agree on and clearly identify the key positions and individuals that are critical to the success of the organization and begin the grooming process – and contingent grooming processes – sooner rather than later. Boards should not only have a comprehensive understanding of the leadership bench underneath those critical roles, but they should develop and continuously refresh a short list of external leadership options which can address any gaps in the succession plan. In addition, all boards should build their own director succession plans to ensure there is continuity with committee chair positions.
The next few weeks will undoubtedly be challenging times for boards.
Chemistry, performance, and decisiveness in virtual environments, and under stress, will be key to any board’s ability to be agile and responsive to customers. Having the right board composition can be critical at times like these, and boards that are effective and propel diverse thinking will find better solutions and be a step ahead.
About Our Board & CEO Services Practice
Our Board and CEO Services team partners with CEOs and boards to understand issues, assess opportunities, and strategically advise to ensure sustainable growth strategies are optimized. We are committed to executing an action plan that addresses sensitive and complex leadership needs and ensures clients are well positioned for the future. RSR offers trusted advisement rooted in years of experience and market knowledge. We excel at optimizing board and CEO effectiveness through transformative thinking about structure and operations. This helps us to engage closely with clients to drive greater accountability and enhanced performance. Our practice group leverages RSR Partners’ renowned experience in corporate governance with the firm’s industry and human capital consulting expertise to create an integrated and seamless approach. The range of services we provide to boards and CEOs include:
Board Services
CEO Services
RSR Partners is a boutique professional services firm headquartered in Greenwich, CT, that specializes in helping Boards and CEOs with their most critical recruiting, selection, and succession needs. The firm was founded in 1994 by industry icon, Russell S. Reynolds, Jr. The firm has conducted thousands of projects for Boards and CEOs at public, private equity backed, and family-owned businesses across a range of industries including asset management, consumer goods and services, industrial, technology, and healthcare. To learn more about RSR Partners, click here.
