Succession planning agenda
Between 2022 and 2023, the rate of CEO changes in India has accelerated, particularly due to rising pressure on performance. In 2023, several factors influenced CEO exits, including companies seeking talent aligned with sustainability goals and digital transformations. Boards are also responding to higher expectations from stakeholders to drive diversity and ensure robust succession planning. According to Deloitte’s recent Executive Remuneration Survey, there is a stronger focus on ‘pay for performance’, with a substantial portion of CEO compensation now variable and linked to performance.
Looks like enterprise boards have to be proactive and dynamic in their approach to CEO succession planning. Here are some emerging trends to watch out for:
• Research from Equilar in 2023 shows that nearly 39 per cent of the CEOs serve 1-5 years, with 13 per cent clocking in just one year in their role. Unlike in previous decades, when boards might have only reviewed succession plans annually, today’s environment demands regular and agile revisits to these plans. Boards are now looking 3-5 years down the line when evaluating leadership needs. This change means that succession planning has become a more frequent topic on board agendas. Regular updates on talent trends and team changes are now considered best practices, replacing the old model of discussing these issues once a year. A brief check-in at each board meeting, coupled with an in-depth review annually, ensures that plans stay relevant in an era of accelerated CEO churn.
• In response to increased CEO churn, boards are rethinking how they cultivate talent at all levels of the organisation. Instead of relying on a ‘name in an envelope’ approach – a single, pre-selected successor – boards are broadening the focus to include candidates at one or even two levels below the CEO. This new stance extends beyond the CEO role, as boards increasingly take an interest in the entire top team. This deeper view allows boards to build a broader talent pipeline, preparing leaders who might step into the CEO role or other critical positions as needs arise. Interestingly, this focus on succession is not limited to a CEO’s final years in the role. Today’s boards begin discussing succession almost as soon as a new CEO takes the helm. By addressing this issue from ‘Day Two’, boards are ensuring that no time is lost in preparing for future transitions. This approach benefits both the enterprise and the current CEO and helps build continuous leadership development that aligns with strategic goals.
• Another trend in succession planning is a shift away from the traditional tendency to model successors after the incumbent CEO. In the past, boards might have looked for qualities and skills similar to those of the outgoing CEO. Today’s boards are more willing to shake things up. They recognise that the next CEO may need different skills to navigate the challenges posed by rapid advancements in technology, AI and sustainability – areas that may not have been priorities for the current CEO. This openness to fresh perspectives has led to considering candidates from outside the company. With industries undergoing changes at breakneck pace, boards need to realise that an external hire may be better suited to meet the demands posed by the changes. Expanding the candidate pool beyond internal talent can lead to better competitiveness and innovation, even if it means that the next CEO has a different skill set or background than their predecessors.
• Boards are embracing the idea of a ‘living’ succession plan – one that evolves alongside the organisation’s needs. This involves more frequent discussions and updates to ensure that succession plans remain aligned with changing business needs. They acknowledge that this isn’t a static exercise, and treat it as an integral part of governance. This can ensure much smoother leadership transitions. For instance, instead of treating succession planning as a single, annual item on the agenda, boards can update it regularly, keeping it dynamic and relevant. The benefits are two-fold: it allows swifter responses to unexpected departures, and ensures an emerging leadership that is ready to step into key roles.