Richard Holt is Managing Director at Alvarez & Marsal, and Amerino Gatti is Energy Executive at Helix Energy. This post is based on an NACD BoardTalk publication.
The average age of CEOs is nearly 60 years of age within the S&P 500. As the average age of CEOs grows older, the average CEO tenure is growing shorter, to about 6.9 years. In this environment, your organization will likely look soon for a replacement, as will many other companies. Are you ready?
Understandably, many companies have been preoccupied with the major economic disruption in the market and may not have invested the time or leveraged the expertise of their board members to focus on effective CEO succession planning.
If you’re not thinking about this topic now, though, you may be in need of a wake-up call, especially in today’s competitive labor market. All signs point to a hiring desert for companies that are unprepared. Some companies are late to the game—but it’s not too late. Boards can act now to ensure their plans are ready to meet the challenges of the future.
Get to Know Your CEO and Plan
The best medicine for healthier succession planning is garnering a deep understanding of what your company needs in a CEO, and that means really getting to know your current CEO and engaging in robust business scenario planning with the CEO and executive team.
Data suggest that many boards of directors are unprepared for engaging in the process of CEO development and succession. A study by The Rock Center for Corporate Governance at Stanford University and Heidrick & Struggles found that only 51 percent of boards can identify their internal successor CEO. Thirty-nine percent say they have zero internal candidates. This isn’t surprising given that when boards do meet to discuss succession planning, they on average only spend 1.14 hours on the topic, according to a separate study by The Rock Center and the Institute of Executive Development.