July 11, 2017; Washington Post
The Conference Board released its 2017 report on CEO succession practices in July, and a few trends in it may be of note to nonprofits. Most interesting to us was the vastly increased use of the interim CEO. According to the press release,
One out of 10 CEO successions in 2016 were navigated by an interim CEO, a role once used only in situations of emergencies and unplanned transitions. Gradual transitions have become more common and so has the option for the appointment of interim CEOs. In each of the last two years, approximately 10 percent of CEO succession events involved an interim appointment. This has happened, for example, at the media company Viacom, the office supplier Staples, and the discount travel Priceline Group. In these and other cases, the length of service for interim CEOs ranged from one month to nearly two years, with two boards (Viacom and Staples) ultimately offering the permanent position to the executive serving in the interim (Bob Bakish and Shira Goodman, respectively). Previously used in situations of emergency, the practice no longer necessarily reveals shortcomings in the planning process or the need to indefinitely prolong the search for a successor. Instead, it can be implemented for a variety of reasons: to audition the person who is already expected to become permanent CEO; for the interim to groom the eventual candidate to the position; or to serve as “seat warmer” and better manage the public relations aspects of a lengthier leadership transition.
Thanks to excellent leadership in the area of nonprofit executive transitions, we also know quite a bit about when and how nonprofits should make use of interim CEOs. In nonprofits, it’s not generally assumed that the candidate is auditioning for the role. Many interims are neither interested in becoming candidates for the job, and others are not allowed to be for fear that the information the interim can provide the board would end up sullied by self-interest.
This article by Tom Adams, an expert in the field, suggests interim CEOs may be put to great use to follow founders or longtime beloved leaders, providing a more gradual transition to a new leader. Hez Norton also mentioned this in an interview NPQ did with a number of experts on nonprofit transitions:
In situations where a founder or longtime executive stays in the organization either during the transition or in another role in the organization, it is helpful to hire an interim director as either a managing director or a co-equal director to help the organization practice the new structure before it hires a permanent new executive.
This helps the organization to discover whether it is ready for the change. It is “testing” shared leadership in the organization. In many cases, an organization might find that the new structure as planned will not work at all or that adjustments need to be made to make it work. It is better to “practice” this with an interim [director], rather than hiring a new staff person into a role that may likely change.
Another finding in this report is that in 2016, “CEO exits from underperforming companies have risen to a level unseen in 15 years.” This actually may be mirrored in our sector, though we do not have the data to back that up. But Tim Wolfred commented in the interview cited above that, “Since early 2010, we’ve seen an uptick in requests for executive-transition assistance. The people who have been sitting tight in their organizations have decided to move on. We are also seeing more boards asking executives to move on. With leaders who had been waiting to leave, boards are more frequently stepping up and saying, ‘It’s better for you and the agency for you to begin planning your succession.’”
One dissimilarity between the sectors is the report’s finding that companies are becoming more communicative about their CEO succession plans so as to avoid surprising market participants.
Communication practices more commonly include providing earlier notice of the CEO succession event, including the description of the role performed by the board of directors in the CEO succession process, and offering more details on the reasons for the transition. In particular, compared with a year earlier, in 2016 boards were 30 percent less likely to announce that the transition was effective immediately.
Nonprofits still appear loath to communicate these plans too early, perhaps afraid that funders will be destabilized.
Finally, the report also found that the practice of appointing the new CEO as board chairman is fading.
The immediate appointment of the incoming CEO as board chairman has become a rare exception, as proxy advisors and the investment community increasingly demand independent board leadership Only 6.4 percent of the successions in 2016 involved the immediate joint appointment of the new CEO as board chairman—the lowest level ever reported by The Conference Board. This finding should be reviewed in conjunction with data on board practices evidencing the growing propensity of US companies, including the larger ones, to either strengthen the independence of the board of directors.
NPQ has been whaling away at the practice of appointing senior staff to the board for some years for precisely this reason. There is no need for such appointments. Good executives should have influence only because they deserve it; otherwise, nonprofits and corporations invite insularity and the potential for a lesser form of accountability.—Ruth McCambridge