5 New Trends in CEO Transitions - A New Type of Leader is Emerging From the Meltdown, Says Stephen Miles of Heidrick & Struggles

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Jan 20, 2010, 10:26 ET

CHICAGO and NEW YORK, Jan. 20 /PRNewswire-FirstCall/ -- "Finding the right person to take over when a CEO leaves is no longer just a 'good idea' but a regulatory priority for boards," says Stephen Miles, Vice Chairman and head of leadership advisory services at Heidrick & Struggles. "Given the grim statistics on succession planning, this is a weak point for many companies and they will need to address it in short order."

"Business has been talking the talk about succession planning for the past 10 years, but this new decade will be about walking the walk," says Mr. Miles, who forecasts five dominant trends – and opportunities – in leadership succession for the next decade:

1. Increased regulatory and investor scrutiny – "The SEC bulletin on succession planning issued last October provided activist shareholders a conduit to investigate and interrogate a corporation's succession planning processes – and they will use it. And it will not just be the Carl Icahns of the world, but also pension funds and unions as well as more traditional investors and analysts."

**The opportunity: Investor premium. Companies that are prepared for CEO transitions will be more attractive to the investment community. "According to a McKinsey study, institutional shareholders are willing to pay a premium of 15-20% for well-governed companies, and succession planning is going to be a part of their calculus."

2. "Operationalizing" of succession plans – "Simply having a succession plan in place doesn't mean that it will produce viable candidates," he says. "Over the past 18 months, we've seen company after company that would have talked confidently about their succession plans fail to orchestrate a smooth CEO turnover."

**The opportunity: Growing HR role. "The person in the organization who will really have to step up is the head of HR. Operationalizing the CEO succession process will be delegated to them, and the qualifications of HR leaders will become more critical."

3. Demand for more qualified succession planners on the board – "Boards would never hire or appoint someone to be chair of the audit or risk committee without specific qualifications, but this has not been true for those that chair the succession process for the company. We will see greater scrutiny of those who serve on this succession committee, and see boards recruiting more 'experts' who have led these processes at other firms, be they CEOs or HR chiefs or other consultants."

**The opportunity: New blood in the boardroom. "This demand for specific expertise opens up a new pool of potential board candidates beyond the traditional pool of CEOs to also include succession experts and a broader array of HR leaders."

4. Emergence of a new kind of CEO – "We are entering a new era in corporate leadership," says Mr. Miles. "The economic meltdown has had the effect of shaking out a lot of dead wood from the top ranks and forcing decisions that companies have been sitting on for 5-10 years. The next generation of CEOs coming in are much better bottom-line leaders than their predecessors, and they truly understand the levers of the business."

**The opportunity: Well-rounded new leaders. "Rigorous succession planning is reinforcing the importance of identifying a leader who is part CEO, part CFO, and part COO – someone who can inspire, who knows how the business makes and loses money, and who understands how the business works on the ground."

5. Reaching down into the organization for the next generation of leaders – "The next year and beyond will have the board pushing further down into the organization to gain more meaningful exposure to those who are two levels down from the CEO."

**The opportunity: Internal CEO candidates. "The bias in the next decade will definitely be toward internal candidates for the top job versus the external hire. Boards are preparing for succession events 18-24 months out, and are asking CEOs to build bench strength and develop people from within.

"A caveat to this trend," says Mr. Miles, "is not to automatically assume that the Chief Financial Officer is the ideal successor candidate. Boards often have a false sense of security about a CFO's ability to run a business. And while of course there are some who can easily step into a CEO's shoes, many have the right financial acumen without the operational skills to round out the job."

"The combination of market and regulatory events will drive a new discipline in the area of succession planning. And a striking benefit of this in the coming years will be less turnover at the top. As companies build greater organizational strength in the C-suite, we will see healthier leadership more able to withstand seismic economic change."

Stephen Miles is Vice Chairman and head of leadership advisory services at Heidrick & Struggles and oversees the firm's worldwide executive assessment and succession planning activities. He is also a key member of Heidrick & Struggles' CEO and Board Practice and is a member of the firm's management committee. He is the co-author of the upcoming book Your Career Game, to be published by Stanford University Press this spring.

If you would like to speak with Stephen Miles, please contact Davia Temin or Suzanne Oaks of Temin and Company at 212-588-8788 or [email protected].

About Heidrick & Struggles

Heidrick & Struggles International, Inc., (Nasdaq: HSII) is a premier leadership advisory firm providing senior-level executive search and leadership consulting services, including succession planning, executive assessment, talent retention management, executive development, transition consulting for newly appointed executives, and M&A human capital integration consulting. For more than 55 years, we have focused on quality service and built strong leadership teams through our relationships with clients and individuals worldwide. Today, Heidrick & Struggles leadership experts operate from principal business centers in North America, Latin America, Europe and Asia Pacific. For more information about Heidrick & Struggles, please visit www.heidrick.com.

SOURCE Heidrick & Struggles