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Why Boards Get C-Suite Succession So Wrong

May 20, 2015
Borderless Leadership

New reports from McKinsey and PwC paint a very bleak picture of C-suite succession practices in today’s corporations. According to the first study, a survey of 1,195 executives, nearly half of those who had ascended to top-level positions in their firms said they were unable to align colleagues around the goals they set out in the new role, while more than a third admitted that they had failed to meet those initial objectives. PwC, meanwhile, calculated the economic cost of large global companies getting their most important C-suite appointment – CEO – wrong: well over $100 billion.

Both consultancies have useful advice to help fix the problem: McKinsey describes how to set up effective integration plans, while PwC describes best practices for CEO transitions. But these recommendations leave out one very important piece of the C-suite succession puzzle, which is the ability of corporate directors to properly vet candidates.

Would you hire a surgeon who wasn’t trained in medicine or delegate a major financial investment decision to someone who hadn’t studied finance?  Of course not.

But all too often organizations leave their most consequential people decisions to board members who may be experts in other business domains but who are woefully uneducated about and inexperienced in evaluating C-suite talent. Over the past few months, I’ve had many small-group meetings with the nominating committee chairs of some of the largest companies in the world. At each one, I asked how many attendees had studied the basic concepts of assessment. Typically, less than 30% answered in the affirmative, and sometimes no one did! Studies we’ve conducted at Egon Zehnder also show that most corporate directors have participated in no previous CEO succession, or just in one.

This means that many of the people responsible for key corporate appointments – decisions that affect not only careers and companies but also industries and economies – do not clearly understand how to evaluate, or differentiate between, performance, competence, and potential. Few have studied research on effective hiring processes, and even fewer understand the validity and reliability of various assessment methods (including tests, interviews, and reference checks) and the best practices for conducting each. Most are also unfamiliar with the most important leadership competencies and unable to map them to the particular situations of their companies. And hardly any of them have mastered the key concepts of and conditions for talent portability.

Mind you, this isn’t entirely their fault. Erich C. Dierdoff and Robert S. Rubin of DePaul University conducted a big study to check the relevance of the typical MBA education. The three competencies rated most important in the real world were managing human capital, managing decision-making processes, and managing strategy and innovation. But the researchers found that those three topics were the least represented in required MBA courses:  Only 29% of programs offered two or more courses in managing human capital, and a mere 19% had two or more focused on managing decision-making processes. By contrast, 87% gave that same high weight to managing administrative activities.

But, in an age where the ability of employees and managers to adapt and innovate is what determines the future of most organizations, corporate directors must begin to educate themselves on talent assessment. C-suite appointments should not be made based on intuition or cursory evaluations. Instead, directors must commit themselves to learning and living the best practices for making the right hiring decisions.

By Claudio Fernández-Aráoz

Source: Harvard Business Review

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