Yesterday in a coaching session a CEO client asked me, “Why do you think the Board of Directors wants to look externally for my replacement? Why is it that the person who has slogged away in the business for the last six years may not be the ideal candidate? Isn’t it better to promote internally?” This is an important question for any Board or CEO to ask: Should the organization replace the CEO with an internal or external hire? What I explained to the CEO is that the CEO role is about the future, not the past. Before you can hire a CEO the organization needs to be clear on what they are trying to achieve, and the potential challenges the organization will encounter when reaching their goals in the future. This future orientation defines what skills and experience the CEO will need to steer the organization down the desired path, and it is the same reason why an internal hire may not be the best person. If internal candidates have been so focused on operating “in the business” as it is today they may have missed opportunities to cultivate the skills and experience required to steer the company in the future.
Internal candidates who are vying for the CEO spot need to work hard to ensure that they are not just tending to the business as it is today. They need to demonstrate to the Board that they are aware of the company's future goals, and potential obstacles, and they have proactively developed the skills and experience to navigate the business through these challenges.
In my succession practice I am finding that most companies do a blended internal and external search for the CEO spot. The Board typically wants to know what other candidates are out there that could lead the business, and they want to do their due diligence with the search to ensure they have the best person, internal or not.
Although in large part this is an effective strategy it can backfire when the internal candidates are in key roles like marketing, business development, and operations, and they become frustrated with the search, and as a result, quit. It is always harder to transition a new CEO into the organization when a key number two role is vacant.
To ensure that internal candidates don’t get fed up and leave the Board and CEO need to make sure they clearly communicate the future business goals, what is required in the role, and how the search process will work. The biggest mistake the Board can make is to drag out the search process, and keep extending it when the external pool is lackluster. Many firms do this. They say the search will be three months, and then they make it six months, ten months, a year. This leaves internal candidates wondering: “what am I? Chopped liver?” As a result, their engagement, commitment, and desire to do the job decreases, or at worst, they quit.
In the ideal scenario internal candidates have a heads up that the organization will be recruiting for a new CEO, and they have a year, or two, to develop the capabilities needed to prove they are a good candidate. With a focused development plan, industry involvement, and operational results, internal candidates can often be highly effective and shine during the search process.