By Parmi Natesan - IoDSA Executive: Centre for Corporate Governance
The recent news that Maria Ramos would be retiring in February after 10 years as CEO of ABSA should be a reminder to the boards that management succession planning is critical, especially when it comes to crucial positions like that of the CEO, says Parmi Natesan, who herself will soon become the new CEO of the Institute of Directors in Southern Africa (IoDSA).
“The CEO is the keystone of any organisation, and so a board should always have a clear strategy for replacing him/her,” says Ms Natesan. “Ideally, the board should plan well in advance for the exit of a key role player like a CEO, and even have a suitable successor in the pipeline. If the new CEO is an external appointment, it is very possible he/she would not be immediately available, so a strong interim CEO who is fully conversant with the organisation—as seems to be the case with Absa—is probably advisable.”
The IoDSA believes there are some critical issues that boards should consider when it comes to succession planning for the senior management roles they have the responsibility for filling, such as that of the CEO:
Be alert for the signs that a CEO has served long enough. One of the hardest decisions for a board is when a CEO should leave, both for the good of the individual and the organisation. While there are no easy answers to this perpetual conundrum, and every individual and organisation is unique, research does suggest that around five years on average is a good rule of thumb.
“Ms Ramos is at pains to stress her own conviction that CEOs should be systematically replaced to ‘allow for a regular refresh’, and that she only stayed in the post for so long because of the need for continuity and stability during a time of significant change for the organisation,” Ms Natesan notes. “In other words, a leading CEO confirms the view that, all other things being equal, even the best CEOs should not stay too long.”
Give culture/ value fit due weight in the selection process. Given the impact he/she has on an organisation, appointing the CEO is one of the board’s most critical responsibilities. With stakeholder relations and reputation management being core components of a CEOs role, care should be taken not to focus exclusively on the candidate’s ability to take the organisation forward strategically and financially; there should also be a fit in terms of the already established culture and values of the organisation.
“This is particularly important when one considers the importance of embedding ethics into the organisation, and the fact that an ethical, values-based culture always comes from the top,” she observes.
Support the new CEO and be open to change. The board’s responsibilities do not end when the new CEO takes up his/her post. It needs to provide guidance and support to help the new CEO become effective as quickly as possible but, at the same time, the board should also be open to the inevitable changes that the new incumbent will introduce. The same goes for the rest of the executive team, who should consciously strike a balance between showing “how we do things here” and embracing the changes that the new CEO has, after all, been hired to initiate.
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