The Board’s Role in a CEO Transition

Time moves in only one direction, so at some point almost every board will be faced with the daunting task of appointing a new CEO. “Given the span of a CEO’s influence, mistakes made during the transition can have a significant impact on the company,” says Chris Meshginpoosh, Managing Director at Kreischer Miller.

We interviewed Meshginpoosh for the June issue of Insights from Kreischer Miller about best practices and pitfalls in governance during a CEO transition.

What should boards be aware of as they help CEOs navigate the transition?

First, finding a CEO is the easy part. The hard work is setting up the new CEO for success.  Outsiders may not have a full understanding of issues that could impact the successful implementation of their strategies. And even insiders with a strong understanding of operations and culture may initially struggle with new responsibilities or supervising former peers. Helping new CEOs address these issues may require more board meetings, longer meetings, or tasking designated board members with the responsibility of spending one-on-one time with new CEOs.

What are some of the most common pitfalls boards and CEOs encounter during the transition process?

The most common pitfall is inadequate planning. Think of it like buying a business—would a board approve an acquisition without ensuring that management developed a well-thought-out integration plan? Boards should treat CEO transitions the same way, because the stakes are just as high.

What are some of the elements of an effective transition plan?

The transition plan should address how the CEO will be briefed on key employees, suppliers, customers, and shareholders as well as when and how the CEO will engage with each during the transition period. First impressions matter, so care needs to be taken to reduce the risk of damaging relationships because of poor preparation. The plan should also set forth specific timelines for key elements of the CEO’s strategy in an order and timeframe that is right for the organization. If an organization’s culture is slow and deliberate, then moving too abruptly may lead to failure.

What role should the departing CEO play in the transition?

If the new CEO is an internal successor, the departing CEO can play a significant role by gradually exposing the successor to elements of the role well before the formal hand-off. However, the board still needs to set specific milestones and monitor progress against those milestones. Even when retiring CEOs are eager to transition, there can be a tendency to hang on, which can cause problems down the line.

What role should the departing CEO play after the formal hand-off? 

This is perhaps one of the most difficult questions to answer and really depends on specific dynamics and personalities. If the new CEO seeks the counsel of the former CEO, then an informal mentoring relationship may be tremendously valuable. However, the board needs to keep a close eye on the former CEO to make sure that they do not cross the line from governance into management. The new CEO was hired to implement their vision and they need the freedom and space to do that. Additionally, the board needs to make abundantly clear that any differences of opinion remain in the boardroom. A former CEO who contradicts the new CEO when communicating with employees and executives can sow discord in the ranks, impacting both morale and performance.

Navigating the transition to a new CEO is one of the most challenging endeavors an organization can undertake. However, with proper planning and active oversight, boards can help maximize the probability of a successful transfer of power.

Christopher F. Meshginpoosh can be reached at Email or 215.441.4600.

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