People & Strategy Winter 2018 Vol. 41 No. 1 - 51

where the board can make an impact
on the company.' " (Schepker et al.).

The Challenge of CEO
Succession Planning

"Succession planning was once the
private purview of the CEO,4 but recent
legal changes in corporate governance
guide boards to take responsibility,
and to continually manage succession
planning, rather than waiting until a
departure is imminent (Schepker et
al.)."
While boards have important new
legal responsibilities, Schepker, et al.
point out that there are many challenges boards face in fulfilling this charge.
These barriers to making well-informed succession decisions often
include:
1. Lack of information because boards
spend little time with one another
2. Lack of information because boards
spend little time with their firms
3. Limited access to internal candidates
4. Costs associated with information
gathering
5. Perceived need to spend time and
attention on other commitments
6. Board information may be biased
based on CEO preferences
"One survey respondent noted that
the three largest challenges boards
face in regards to CEO succession are
(1) getting a sufficiently objective view
of internal candidates, (2) getting
an appropriate overview of external
candidates, and (3) clarifying the skill
sets and capabilities needed of the next
CEO aligned with the long term strategic plan. Thus, boards face severe
decision-making challenges. They are
responsible for selecting the CEO, but
they often rely on others to provide the
critical information necessary for good
decision making" (Schepker et al.).
Many factors come into play when
hiring a CEO of an organization,
including power, politics and personal
interests. While these are an inevitable
part of any hiring process, boards of
directors and CEO hiring decisions
are potentially even more susceptible
to these factors. Directors are often
appointed because of their external expertise rather than the knowledge they

have about the inner workings of the
firm. This distance creates a unique
challenge for accessing objective information that has not been filtered by
power, politics and personal interests.

A Strategy for CEO Succession

In order to overcome these inherent
challenges, the research suggests that
boards devise a formal, ongoing, and
systematic way to acquire objective
information. They also need an agreed
upon formal process for analyzing and
considering the information in the
context of key strategic internal and
environmental factors.
Boards should define a comprehensive system that supports exploring alternatives, limits politics, and promotes
systematic evaluations. That is, they
should establish an ongoing set of activities to distinguish roles, determine
skills needed (especially the skills needed for long-term strategy execution),
and plans to develop high-potential
candidates. These activities collectively
constitute Formalized Succession Planning
(FSP).
Establishing FSP (a type of procedural rationality5) can lead to better
decisions and better outcomes for three
reasons.
First, it can overcome a planning
fallacy that underestimates the time
and effort it takes for a board to make
important decisions. "As one former
Fortune 100 CEO noted, 'Succession
planning isn't a once a year meeting; it
is an ongoing process.' And as a another senior executive shared, 'We begin
planning for the next CEO succession
the first day our CEO takes office"
(Schepker et al.).
Second, it can overcome the planning fallacy of confirmation bias where
a charismatic or celebrity candidate is
chosen and information to the contrary is discounted.
Third, it can overcome a succession
planning fallacy that underestimates
the reliance a board has on the CEO
and top management team for information.
FSP can actually increase the quality
and quantity of candidates, including
qualified internal candidates. As a
result, FSP increases the chances that
an internal candidate will be selected

because high-potential candidates will
likely be identified earlier and have
more time for developmental opportunities. For example, high-potential
leaders could be promoted to serve
as the COO or division president to
see how they handle larger responsibilities. With a greater number of
qualified internal candidates, there is a
lower chance that an interim CEO will
be named, which reduces transition
turbulence. Finally, FSP activities force
boards to focus their time and attention on the important work of preparing for CEO succession.
CHROs have become trusted sources of objective information. They are
critical to designing and leading a company's FSP activities. Schepker, et al.
state, "For instance, according to a former Fortune 500 CEO we interviewed,
after the CEO, the two most important
TMT members are the chief financial
officer (CFO) and the CHRO, because
modern firms compete substantially
by leveraging their human capital.6 Another executive we interviewed noted
that these positions are critical because
in addition to the CEO, the CFO and
CHRO are the only organizational
positions who have enterprise wide
perspectives and responsibilities.
Hence, we consider CHROs the best
source for information about CEO succession planning because they are often
responsible for managing the succession
process, identifying potential succession candidates, creating development
plans, and advising the board about
CEO succession and candidates. They
rarely are potential CEO successors, so
they also are less likely to have personal
investment in the result. In this unique
position, CHROs have a distinct view of
succession planning and related activities that includes both CEO and board
perspectives (Schepker et al.).

Formalized CEO Succession
Activities for Boards

As a foundation for building formalized succession planning activities,
CHROs should consider asking the following key questions (Schepker et al.):
1. Approximately how many executives
in the total executive population
currently would be considered potential successors to the CEO?
VOLUME 41 | ISSUE 1 | WINTER 2018

51



Table of Contents for the Digital Edition of People & Strategy Winter 2018 Vol. 41 No. 1

From The Executive Editor
From The Guest Editors
Perspectives
So You Want to Be a High-Potential?
How to Identify and Grow High Potentials: A CEO’s Perspective with Proven Results
Getting the Right People in the Hi-Po Pool
Wherefore Art Thou All Our Women High-Potentials?
Are Your HiPos Overrated?
Executive Roundtable
In First Person
Linking Theory + Practice
Insight into Action
Leadership Insights
People & Strategy Winter 2018 Vol. 41 No. 1 - Cover1
People & Strategy Winter 2018 Vol. 41 No. 1 - Cover2
People & Strategy Winter 2018 Vol. 41 No. 1 - 1
People & Strategy Winter 2018 Vol. 41 No. 1 - 2
People & Strategy Winter 2018 Vol. 41 No. 1 - 3
People & Strategy Winter 2018 Vol. 41 No. 1 - From The Executive Editor
People & Strategy Winter 2018 Vol. 41 No. 1 - From The Guest Editors
People & Strategy Winter 2018 Vol. 41 No. 1 - 6
People & Strategy Winter 2018 Vol. 41 No. 1 - 7
People & Strategy Winter 2018 Vol. 41 No. 1 - Perspectives
People & Strategy Winter 2018 Vol. 41 No. 1 - 9
People & Strategy Winter 2018 Vol. 41 No. 1 - 10
People & Strategy Winter 2018 Vol. 41 No. 1 - 11
People & Strategy Winter 2018 Vol. 41 No. 1 - 12
People & Strategy Winter 2018 Vol. 41 No. 1 - 13
People & Strategy Winter 2018 Vol. 41 No. 1 - 14
People & Strategy Winter 2018 Vol. 41 No. 1 - 15
People & Strategy Winter 2018 Vol. 41 No. 1 - 16
People & Strategy Winter 2018 Vol. 41 No. 1 - So You Want to Be a High-Potential?
People & Strategy Winter 2018 Vol. 41 No. 1 - 18
People & Strategy Winter 2018 Vol. 41 No. 1 - 19
People & Strategy Winter 2018 Vol. 41 No. 1 - 20
People & Strategy Winter 2018 Vol. 41 No. 1 - 21
People & Strategy Winter 2018 Vol. 41 No. 1 - How to Identify and Grow High Potentials: A CEO’s Perspective with Proven Results
People & Strategy Winter 2018 Vol. 41 No. 1 - 23
People & Strategy Winter 2018 Vol. 41 No. 1 - 24
People & Strategy Winter 2018 Vol. 41 No. 1 - 25
People & Strategy Winter 2018 Vol. 41 No. 1 - 26
People & Strategy Winter 2018 Vol. 41 No. 1 - 27
People & Strategy Winter 2018 Vol. 41 No. 1 - Getting the Right People in the Hi-Po Pool
People & Strategy Winter 2018 Vol. 41 No. 1 - 29
People & Strategy Winter 2018 Vol. 41 No. 1 - 30
People & Strategy Winter 2018 Vol. 41 No. 1 - 31
People & Strategy Winter 2018 Vol. 41 No. 1 - Wherefore Art Thou All Our Women High-Potentials?
People & Strategy Winter 2018 Vol. 41 No. 1 - 33
People & Strategy Winter 2018 Vol. 41 No. 1 - 34
People & Strategy Winter 2018 Vol. 41 No. 1 - 35
People & Strategy Winter 2018 Vol. 41 No. 1 - 36
People & Strategy Winter 2018 Vol. 41 No. 1 - 37
People & Strategy Winter 2018 Vol. 41 No. 1 - Are Your HiPos Overrated?
People & Strategy Winter 2018 Vol. 41 No. 1 - 39
People & Strategy Winter 2018 Vol. 41 No. 1 - 40
People & Strategy Winter 2018 Vol. 41 No. 1 - 41
People & Strategy Winter 2018 Vol. 41 No. 1 - Executive Roundtable
People & Strategy Winter 2018 Vol. 41 No. 1 - 43
People & Strategy Winter 2018 Vol. 41 No. 1 - 44
People & Strategy Winter 2018 Vol. 41 No. 1 - 45
People & Strategy Winter 2018 Vol. 41 No. 1 - 46
People & Strategy Winter 2018 Vol. 41 No. 1 - 47
People & Strategy Winter 2018 Vol. 41 No. 1 - In First Person
People & Strategy Winter 2018 Vol. 41 No. 1 - 49
People & Strategy Winter 2018 Vol. 41 No. 1 - Linking Theory + Practice
People & Strategy Winter 2018 Vol. 41 No. 1 - 51
People & Strategy Winter 2018 Vol. 41 No. 1 - 52
People & Strategy Winter 2018 Vol. 41 No. 1 - 53
People & Strategy Winter 2018 Vol. 41 No. 1 - Insight into Action
People & Strategy Winter 2018 Vol. 41 No. 1 - 55
People & Strategy Winter 2018 Vol. 41 No. 1 - Leadership Insights
People & Strategy Winter 2018 Vol. 41 No. 1 - 57
People & Strategy Winter 2018 Vol. 41 No. 1 - 58
People & Strategy Winter 2018 Vol. 41 No. 1 - Cover3
People & Strategy Winter 2018 Vol. 41 No. 1 - Cover4
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