CEO succession: Avoiding the ‘Domino Effect’
Choosing a new CEO is a delicate process that can go poorly and lead to many problems. Boards of directors and outgoing CEOs, the key parties involved in CEO succession, should be careful to not set off what consultancy BTS calls the ‘Domino Effect’.
When replacing an outgoing CEO, promoting internally is the obvious choice for most organizations. Going with an external hire for the role of CEO is risky and less common, though it may be increasing in popularity with mid-sized companies.
While it is the safer option, promoting a new CEO internally does also come with a serious risk: The Domino Effect. That is when a star performer is promoted to CEO, but there is no immediate successor to fill their position, which then causes one disruption after another.
The impact of the Domino Effect
In a blog post discussing the Domino Effect, BTS gives the example of a large financial services company that promoted their ideal internal candidate to the position of CEO. Two other leaders in the company that were also vying for the position then ended up leaving the company, leading to an unexpected leadership vacuum in their departments.
In another example, a manufacturing multinational hired a new CEO internally that lacked the sales and marketing expertise of his predecessor, which led to slower revenue growth. In order to compensate for that, the role of head of sales and marketing was expanded to be two executives instead of just one, which also led to disruption.
These types of shuffles in leadership can lead to confusion and instability, ultimately impacting a company’s success. In some cases the role that the new CEO vacated actually ceases to exist. Research from BTS found that 60% of the top-performing companies and 75% of the poorest performing companies saw disruptions related to the Domino Effect.
Disruptions can take a number of different forms, like needing to hire from outside for the role a new CEO leaves behind, or needing to restructure or even eliminate the role altogether. These types of turbulence create issues not just for teams at an organization, but also for the new CEO that is trying to onboard quickly.
Preventative measures
As part of the C-suite succession process, CEOs, CHROs, and Boards need to make sure they do as much as they can to prevent the Domino Effect. That includes creating a roster of potential successors to the new CEO’s previous role, preventing any vacancy from causing sudden issues.
Planning for a major shuffle in roles is also an important part of succession: Organizations can create a series of ‘success profiles’ for the CEO and those roles that a new CEO candidate might leave. They should ensure that the success profiles are based on what is expected in the next three to five years, rather than focused on what is important today.
Data is also key here. When considering success profiles, those in charge of CEO succession can benefit from a structured assessment of candidates using all available data. The power of data helps reduce the risk of biases towards individuals and can determine their readiness to take on future business challenges.
Once an organization has a working roster of potential candidates for internal promotions, it should be updated regularly so that viable candidates are always on hand. Considering the cascading impact of the Domino Effect, organizations should stay on top of refreshing this ‘succession slate’.
Overall, it is important that the entire leadership of an organization view succession as a strategic imperative rather than just a single event. Leaders should work together, focusing equally on the CEO role and the successor leadership roles throughout the organization.
“Finding, placing, and ramping up a new CEO is a momentous decision with big outcomes at play – for the CEO’s own success and the viability of the organization. If you embrace the opportunity to turn the Domino Effect into a strategic game plan, you will be positioned both for accelerated success and impact,” according to BTS.
