Ch 7 CEO Succession

What makes a good or bad CEO?

Good CEO

-relevant industry experience

-responsibility, work ethic, etc.

-open to feedback

Bad CEO

-inexperience

-arrogance

-emotional

What drives poor decisions from the board in managing the CEO

-in-group bias: favouring candidates that are similar to decision makers

-bandwagon effect: follow what other companies, the market or what other decision makers believe

-confirmation bias: seeking info that aligns with what you already believe

-escalation of commitment: continuing to invest in a failing course of action because of the resources aready committed

-overconfidence bias: decision makers overestimating ability to evalute candidates

What is happening to the CEO labour pool

-extremely competitive and small pool, need good compensation to attract best talent

What is succession planning

Ongoing process that is a replacement plan for CEO that protects ability to perform key functions and sustains key relationships, benefits include:

-reduced costs due to succession

-reduced anxiety/fear from stakeholders around succession

-well prepared for CEO retirement

-well prepared for crises (unexpected loss of CEO)

What are four models of CEO succession planning

-External candidate

-Heir-apparent

-Horse race

-Inside-outside

What is the external candidate model

Company recruits external candidate

Pros

-has proven experience as CEO

-more free to make strategic or cultural changes

Cons

-less familiar with company

-board has not evaluated performance

-leadership style may be different

-costs to recruit them

What is the heir apparent or internal candidate model

Company uses an internal replacement or a clear heir (COO, president etc.)

Pros:

-familiar with company

-seamless transition and sustained relationships

-board knows their performance

Cons:

-difficult to bring in new ideas or change

-heirs may be stuck as heirs for too long (stuck as COO)

What is the horse race model

Pitting two internal canidates against eachother

Pros

-board can see performance

-board does not need to commit to a candidate early

-can groom both of them

Cons

-can bring unwanted media attention

-creates internal factions with a favourite

-causes brain drain where losers may resign

What is the inside-outside model

Company develops internal talent and recruits externally

Pros

-internal candidates are being groomed

-external candidates ensure best CEO chosen

-even playing field between internal and external

Cons

-lots of planning and oversight

-if process is skewed can break trust

What are two special cases of succession models

-Interim CEOs: interm CEO who helps in transition period, provides time to find candidate, can also groom the candidate etc.

-Director CEOs: a board director assumes role of CEO, can indicate poor succession planning