Succession planning who is responsibleIn many closely held businesses, the acting CEO is typically responsible for training and developing his or her successor. Sometimes this is the case because there is no acting board of directors with members from outside the organization that is providing true governance to the business. However, in instances where there is an acting board with outside members who have governance responsibilities, there is often debate as to whose ultimate responsibility it is to choose a successor to run the business.

Best practices would suggest that it is ultimately the board of directors’ responsibility to make the final decision. After all, the board has been charged with the fiduciary responsibility to act in the best interests of the shareholders. In all likelihood, the board will work closely with the acting CEO, as his support and assistance will be very helpful in grooming potential successors and he can provide input in the selection process. But the board of directors is often in the best position to make unbiased, objective choices as to which candidate would be the best successor to lead the business.

Here are some reasons why the acting CEO may not be the best person to choose the company’s successor:

  1. They may have a family member who they believe should run the business just because they are family, even though they may be lacking the skill sets to do so. Their judgment may be clouded by family obligation rather than doing what is right for the business.
  2. They might choose someone with lesser skills so the acting CEO can stay relevant and more involved in the business than a truly retired person should be.
  3. The acting CEO may not recognize when it is time to retire and may unnecessarily prolong the succession planning process when in reality a new, fresh, and more energetic perspective is required at this juncture in the company’s life.
  4. They may choose a successor who is more likely to follow the course and strategies set by the acting CEO rather than someone who may have different ideas and thoughts as to how to grow and improve the business.

The acting CEO will have valuable insight from working closely with internal succession candidates. However, for reasons of the biases reflected above, it is the Board of Directors that should be vested with the ultimate decision-making authority to hire the successor CEO.

These issues should be evaluated and addressed in advance to ensure the easiest and most successful transition possible. It is very important to assess the rest of the senior management team and consider what other changes might be needed in order to strengthen it.

Contact us at 215.441.4600 or Email if you have questions or would like to discuss how this topic may impact your business.

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