There is no more vital decision for a bank and its board of directors than who leads the organization. Yet leadership succession remains a growing challenge, as banks too often lack sufficient executive depth or proper succession planning.
Having conducted over 100 CEO succession search and assessment assignments, we have clearly seen that superior talent really does make a difference, especially for banks intending to remain long‑term survivors. From these accumulated client experiences, we have identified Six Key Lessons Learned from CEO Transitions.
Lesson #1: Succession Really Does Matter!
It is imperative that boards exercise their fiduciary and governance responsibilities and grapple with the challenges of leadership succession. The continuity of leadership promotes continuity of strategy, and both regulators and governance activists are more focused than ever on succession. There is also a growing body of information which affirms that a lack of planned orderly succession can have a significant impact on the value or survival of the company.
Lesson #2: The Elephant in the Room Cannot Be Ignored
Where is the elephant in your boardroom? Who is the stumbling block to planning for the bank’s future leadership? Is it the CEO who refuses to accept that he/she will not live forever, or are there directors who do not want to raise this issue with their friend, the CEO? The board has a responsibility to tackle succession no matter how awkward it may be, so start these conversations early and have them often.
Lesson #3: The Succession Process is as Important as the Outcome
A robust, thoughtful and thorough succession process adds huge credibility to the board and the bank, regardless of whether your successor comes from within or outside of the bank. Take the time upfront to ensure the alignment of your organization’s strategic plan with the ideal profile of your next CEO — which will likely look different than the predecessor’s.
Lesson #4: You Really CAN Do It! Develop Your Own Methodology and Timeline
Each succession situation and timeline are different, so there is no definitive template to follow. That being said, begin your efforts no less than 30-36 months before you anticipate a potential transition of leadership. It is also very helpful to formally anoint a Succession Committee of the Board (note: this is different from a search committee) to take ownership of this process and manage the many critical elements along the path. This makes the succession effort more manageable and provides for accountability.
Lesson #5: It is Critical to Handle Potential Internal Contenders Well
Handling internal contenders well has a significant impact on how they feel about the company and their ability to still see their future in the organization. Position the entire exercise as a developmental opportunity and provide constructive feedback and specific recommendations for folks who are not selected for advancement.
Lesson #6: Avoiding the Challenges of Succession May Have a Huge Downside
Research from FTI revealed that 43% of CEO transitions are unplanned, with 27% due to either forced resignations or unexpected issues that arise; the rest are voluntary unplanned resignations. Unforeseen leadership changes not only impact the valuation of the business, but banks without good succession management are also proven more likely to sell.
Institutions that have survived and thrived over a lengthy time horizon have benefited from the successful execution of strategy, which flows from a continuity of leadership and thoughtful planning. Bank boards of directors and incumbent CEOs must recognize this imperative and regularly focus on succession and talent at the top of their agendas.
Alan J. Kaplan is the founder & CEO of Kaplan & Associates Inc., a retained executive search and talent advisory firm based in Philadelphia. You can reach him at alan@kaplanpartners.com or (610) 642-5644.
