An organisation may have to pay a very huge price if it doesn't have its succession plan ready if its CEO suddenly quits. If caught on the backfoot in such a situation, most organisations would quickly look internally for the best person to handle the job. In an ownership company, the job could pass on to the promoter’s family member, never mind his capability to take on the responsibility. In both cases, the new fit might not be right.
You can't create a CEO overnight. The CEO leadership diagram is different. The organisation will carry a huge risk if it has a charismatic CEO and he suddenly moves somewhere else. Ideally, an organisation should plan on the next CEO three-to-five years in advance. Suddenly getting in a new CEO from outside can carry its unique set of problems on acceptance by people within the organisation. Waiting for the new outsider to settle in and find acceptance could prove expensive in an increasingly time-strapped business environment.
In a highly competitive milieu, just being the closest fit or a family member in a CEO vacancy situation can be troublesome. A new CEO needs to be able to take on the responsibility from where his predecessor left off and take the business forward, rather than starting from scratch or fumbling around before he/she finds his/her stride. In the case of a family member taking on the CEO position, acceptance should be more on capability than on bloodline.
While bringing in a new CEO groomed well in some other organisation may not be a disastrous idea (and there are organisations – Hindustan Unilever Limited is one such example – that have put out excellent CEOs into industry), filling in a suddenly vacated CEO chair can see hiccups as the new incumbent takes time to understand what is required of him and others in the organisation take time to understand align to the new person’s vision and way of working.
Wouldn’t it be so much better to develop a CEO-in-waiting, completely aligned to the organistion’s needs and challenges, beforehand? This person could well be from some other organisation, with the potential to take on the CEO mantle. The idea is that he has been groomed to fit the position. This way, the faith of shareholders, customers, employees and other important stakeholders is safeguarded.
A person may have the right qualities to be a CEO: good strategic thinking, foresight, risk-taking ability, excellent interpersonal and communication skills, good execution capabilities, building and managing scale, financial acumen, entrepreneurship and so on. But it is difficult to imaging that all these qualities could be active in one individual at the same time. He may have some of these as proven or active attributes and others as potential that can be tweaked awake. This cannot be done suddenly, in a snap.
It makes so much more sense to develop such an individual as a CEO-in-waiting with, most importantly, aligning the organisation’s vision and his. This key strategic wavelength absolutely needs to be aligned. Only when such an alignment has occurred can the leadership transition be smooth.
Interestingly, it is not necessary to groom only one CEO-in-waiting. Some organisations have developed more than one CEO-in-waiting to choose from. ICICI Bank, Infosys and Microsoft are examples. If an organisation plans in advance and also revolves its leadership, then it can create wonders by virtually building a CEO-bank. This can even take care of that niggling question of what happens if a CEO-in-waiting quits while he’s waiting. If you build a CEO, he will build the business. So how may business houses, even from among the largest, are prepared today with a leadership succession plan?