Without a well-constructed spec, boards are sailing without a compass
By Elke Hofmann, Vineet Hemrajani, and Greig Schneider
A recent Egon Zehnder gathering of senior board members highlighted the anxiety that accompanies CEO succession planning. Participants voiced several worries, including market reactions, fear of inaccurate suitability assessments, lack of alignment among board members, and simply the fear of “getting it wrong.”
These fears are understandable. When it comes to choosing a new CEO, the stakes are high, there are many variables to consider, and many board members have little—or no—experience with such transitions to draw upon. The risks can feel quite personal: A wrong decision can quite literally bring a company down, and no one wants to be associated with a board that made such a call.
Their concerns lead many boards to fall into one or more of the following traps. First, they play it safe. (Some might call it “the “CYA” trap.”) Rather than choose someone who could be seen as a risky candidate, such as an outsider or first-time CEO, they pick an experienced insider or veteran outsider because these choices feel more defendable externally.
Second, they follow what feels like the path of least resistance and pick the assumed internal successor: someone they know well and in whom the incumbent CEO has invested. Boards tell themselves, “Promises were made,” or “It’s better to go with the devil you know.” To be sure, there are many reasons why promoting an internal candidate can be the right move: They know the culture, have valuable experience, and hold existing relationships with key stakeholders, among other benefits. But the choice must be made for the right reasons.
At a time when so many external factors feel unpredictable and out of control, a third tendency we see is board members (perhaps unconsciously) look to the candidate they think will provide predictability. This is similar to the “safety” path above, but with a different root cause: More experience can feel like more stability.
But experience may never have been more of a double-edged sword than it is at this moment. No leader alive has had to sort out the after-effects of Covid on culture. No leader has ever had to assess the degree of upheaval that artificial intelligence will cause in their business. And no board has had to evaluate what kind of candidates succeed best under these conditions. How should boards think about experience as a variable in their decision?
The Spec Is the Key
Properly weighting the need for experience in a CEO succession process depends on considering it appropriately as part of the broader equation of the various elements needed in the next CEO.
That equation should be captured in the CEO role specification (spec), which serves many important purposes. It’s a guide for development of internal candidates, a vehicle for gaining board alignment around priorities, and perhaps most important, the target against which candidates should be measured. Too often this key piece of the process is given insufficient attention.
Creating the spec
Rather than go through the difficult work of agreeing on the most important needs for the next CEO, we often see boards draft a spec that captures everything that might be important, as well as other odds and ends. The result is more a laundry list than a clear north star. (For example, a board might list “high integrity” as an important quality. Are there any situations where a company does not want a high integrity leader?)
The process of creating a spec should be rigorously managed. Board members should be interviewed individually to get their candid perspectives on what’s needed, and the findings should be synthesized. While these discussions generally identify many areas of agreement, they also help surface areas where opinions diverge. It is best to resolve these conflicts early, as left unaddressed they tend to re-emerge when comparing candidates later.
In addition, we recommend that the board take an additional step to combat what Jennifer Garvey Berger, author of Unlocking Leadership Mind Traps, describes as “natural tendencies that steer leaders wrong in a fast-moving world.” These mind traps include “the desire for simple stories, our sense that we are right, our desire to get along with others in our group, our fixation with control, and our constant quest to protect and defend our egos.” You can see some of these reflected in the issues noted above, and they cause problems.
The board member gathering we cited at the start of this article also included an open discussion about how their own personal biases and fears have an unseen but significant impact on decisions—but are rarely confronted. Surfacing and avoiding these mind traps can help boards avoid unhelpful patterns, enabling better outcomes.
Elements of a well-done spec
A well-constructed role spec should have the following elements:
Context: A synopsis of the challenges and opportunities that the board expects the incoming CEO to face going forward, including strategic, operational, and people-oriented issues. You’ll want board members to agree upon the issues that are most important to future success. This often takes some facilitated discussion.
The context then determines the other elements of the spec, including:
Experience: What experiences would the ideal candidate have? For example, is industry experience essential, or might an entirely different background be better? How big a P&L would give the board comfort that the individual’s instincts will be sufficiently honed? What kinds of experiences are “must haves,” and which are “nice to haves?” Which must the CEO personally have, and which can be added within the team or via external advisors? Being clear and specific about these areas is important.
Leadership capabilities: What leadership muscles has the candidate built from their experiences? Of the many desirable skills, which are most important for this role going forward? For example, does the organization most need an exceptional strategist, or is operational brilliance or exceptional team leadership more important? Many specs answer “all of the above,” but prioritization is needed to inform choices and guide the tradeoffs which will be inevitable.
Traits: Boards often have a point of view on the “feel” of the leader they are seeking (for example “humble/low ego”), which can relate to cultural elements of the organization. The trait section can also be where a final, and critically important, element often lives: potential. When it comes to potential for continued growth, the target is always “as much as possible.” Terms such as curiosity, grit, and engagement are often included in specs as indicators. (For a detailed discussion of potential, see this article.)
Using the spec
In writing the spec, the board should have wrestled with the issues above and gained alignment on both the context and a clear set of priorities. These priorities will have defined which skills and experience are most important, and in so doing have created the scoresheet by which candidates can be measured.
As candidates are assessed, experience should be integrated with the other elements to consider the complete picture. Whether a given experience is an asset or has created unhelpful muscle memory must be determined: It depends on how the lessons from the experience have been absorbed, and how the candidate is able to apply them to new situations.
The candidate’s ability to succeed in the role demands a careful examination of all of these elements: What the executive has seen, what they have learned, what they have proven they can do well, and what indications give confidence they can adapt and thrive in areas where they are not yet proven?
Good Succession Decisions Require Clarity and Prioritization
It may be tempting for boards to reach for the most seasoned candidate when uncertainty is ratcheting up the stakes. But making the right choice of CEO—and appropriately weighing experience as part of that choice—depends on the board being willing to do the hard work of gaining alignment. Properly considering the context, debating the priorities, and landing with clarity on a spec that describes what the organization truly needs takes time, effort, and often, external support. Given the stakes, it will be time and effort well spent.
Elke Hofmann, based in Munich, is the Managing Partner for Egon Zehnder in Germany.
Vineet Hemrajani, based in Mumbai, is the Managing Partner for Egon Zehnder in India.
Greig Schneider, based in Boston, is a partner and former leader of Egon Zehnder’s Global Leadership Advisory Practice.