How Boards Can Assess the Potential and Readiness of Future CEOs

Republished by Harvard Law School Forum on Corporate Governance.

CEO succession planning works best when it’s a continuous process that constantly replenishes your pipeline of future leaders. And that means you need to start it early. In fact, the board should start planning for the next CEO from the first day a new one steps into the job.

From day one, you need to define what you want in your next CEO, find who in your organization has the potential to get there, and outline how you’ll develop those skills in the coming years. And, when it comes time to choose a successor, you’ll need to accurately assess your candidates to choose the right leader.

The question is, how do you start so early?

How do you define the skills your CEO will need years in advance? How do you find high-potential candidates? And how do you nurture them to ensure they’re ready to step up when the time comes?

Define what you need in a CEO

Great CEO succession starts with a success profile—a documented view of what your organization needs in its next CEO. While it’s difficult to predict the critical requirements for your next CEO five or six years in advance, a success profile will help you think about future needs systematically and align the board early in the process.

The board is solely responsible for appointing the CEO, so members need to discuss the success profile in detail. Unless the board defines and aligns to a robust success profile, you’ll be flying blind as you develop and choose your next CEO.

This starts with the organizational strategy. What are your organization’s long-term ambitions? What’s the trajectory of the wider market and society? And how will changes force your strategy to evolve in the next few years?

With the board aligned around this long-term strategic view, you can debate the actions your next CEO will need to take to deliver on the strategy. Clearly defining these expected deliverables will let you think about the critical experiences the candidates will need to have if they’re to be successful. Only then will you be able to define the skills—functional, leadership, and personal—your next CEO will need.

Together, the strategy, actions, experiences, and skills form your success profile. But it shouldn’t be a static document—imagining the future is imprecise, and development and assessment evolve continuously, so it’s critical to revisit and refresh your success profile regularly.

Assess the potential of internal candidates

Once you’ve defined what you want from your next CEO, you should assess your current leaders to understand who has the potential to meet those needs, and what they’ll need to develop.

When assessing against your success profile, you should include interviews with multiple experts, psychometric tests, and 360-degree feedback to measure six criteria:

1. Intellect, problem-solving, and systems thinking
2. Ability to work well with ambiguity and conflict
3. Ability to learn continuously
4. Drive to excel at an extremely high level
5. Emotional intelligence and ability to influence others
6. Leadership style versatility

The goal is to produce a list of potential internal candidates to work with, and tailored development plans for each to steer them in the right direction.

To be most effective, it’s best to run this assessment early. By doing it four or five years before changing CEOs, you’ll leave enough time for real candidate development. It also leaves enough time to recruit, integrate and develop talent if you find you need to bring in new leaders, such as if you don’t currently have anyone with CEO potential or lack a diverse pool of candidates.

Getting such a critical process right isn’t easy. That’s why we’ve used our decades of experience to develop adaptable tools and methods for leadership assessment. Leadership Span™, for example, helps organizations find and develop leaders who are most likely to have long-term success in C-suite roles, assessing critical candidate attributes such as emotional intelligence, resilience, self-awareness, and adaptability.

Assess the readiness of your potential CEOs

When it comes time for a change, the board has sole responsibility for choosing the next CEO. It’s a decision that will define the legacy of your organization, with the potential to drive growth for years to come or stifle every aspect of the business.

Making the right choice requires understanding more than a candidate’s potential—you need to understand their readiness.

You’ll want to prove whether candidates have the skills and experiences needed to tackle the company’s priorities and deliver the strategy. You’ll want to confirm they have the traits most associated with successful CEOs. And you’ll want to probe their cognitive and decision-making abilities.

While traditional assessment methods, such as psychometric tests, can predict capability in many of these areas, direct observation will show you whether your candidates are really ready. That’s why we’ve developed a process for running contextual immersions, which put a CEO candidate in realistic scenarios that actors play out.

By asking the candidate to step into the role of CEO in a realistic scenario, you see how they would perform in the real world. This is particularly useful in uncovering how your candidate:

• develops a strategy
• oversees strategy delivery
• nurtures culture
• leads through values and purpose
• responds to challenging people
• motivates and builds followership
• attracts and retains top senior talent.

CEO succession planning should be constant for boards

There’s no doubt that choosing a new CEO is the biggest decision a board will make. To ensure such a change runs as smoothly as possible, CEO succession planning should be a continuous process that ensures you’re developing a group of high-potential leaders.

By starting with an unclouded vision of the skills and characteristics your next CEO will need, you’ll be able to find candidates early and nurture them to maximize their success. And by keeping that vision in mind as you practically assess those candidates, when the time for change comes, you’ll find the right CEO to drive value for all stakeholders.