Four Considerations for Private Company CEO Succession

By Roberta Sydney


CEO Succession Private Company Governance Online Article

Succession is a complex process with many elements and deserves considerable time and deliberate planning. Preparing early for CEO succession leads to positive outcomes for the transitioning chief executive, senior leadership, and the private company. Outlined below are four key considerations for private companies for a well planned and executed CEO transition.

1. The CEO’s Mindset

One of the most challenging factors related to succession is helping the current CEO exit. There are emotional, financial, and logistical aspects to private company CEO succession; this is particularly the case if the outgoing CEO is part of the founding team or family. At times, CEOs have bittersweet feelings about transitioning and, if the CEO’s identity is tightly tied to the business, handing over the reins can be hard.

To begin a successful private company succession process, whether the company will be sold or transitioned to a new internal or external CEO, the current leader needs to embrace the transition and that their role will change. When CEOs prepare early for their own personal future as well as the future of the business, transitions run more smoothly. One way that leaders can help themselves with this impending transition and their new role is to connect with other former private company CEOs or founders who have navigated this path successfully. Transitioning private company CEOs can be helped by having frank conversations about their fears and concerns with those who have previously made this major career shift. Their fears may relate to their impending status or role change, their desire to maintain a positive culture, or concerns about leaving the company in the right new leader’s hands.

2. Financial Considerations

Often, the leadership transition accompanies a partial or full buyout of the current CEO’s ownership stake. When a private company undergoes a planned CEO succession, there are questions to answer about how the succession would best occur, and which options are financially viable. Is the business well positioned for the future? Is it feasible for a cadre of management or family members to buy out the current CEO’s ownership stake? Knowing the answers to these and other financial questions, including the tax implications of the buyout, will help provide guidance for the pre-planning exercise.

3. Communication Is Key

Absent information, employees and people in general make up stories and often assume the worst. Sharing some information at the appropriate time with key stakeholders, vendors, customers, senior management, and employees goes a long way to help orient the entire ecosystem to the planned succession. Successful communication requires less detailed information at the front end, with the release of more information as the process unfolds. Communication also requires multiple touchpoints, from the beginning up to the ultimate appointment of the new CEO, through to a 90–120 day post-appointment timeframe. Helping everyone understand the change that is underway, which by its very nature can be scary, will help keep business distractions to a minimum and enhance the onboarding process for new leadership.

4. Who takes over?

Assuming that the private company is not being sold to a third party, the board must decide who will become the new CEO. When private companies transition to new leadership, a thoughtful and deliberate CEO profile scoping exercise leads to the best outcome. This includes understanding the company’s market position, business model, and business strategy for the next three to seven years. Understanding company culture is also key, to ensure that the new leader will be a good fit. Culture assessment and “fit” are especially important for an external CEO hire. With this backdrop, the exercise leads to defining the necessary attributes, skills, and competencies of the new leader.

Once the profile has been compiled and approved, most private companies turn first to considering internal candidates, if any. If no internal candidates possess the necessary skills, attributes, and competencies, then an external search begins along with rounds of testing, interviews, and evaluations to select an appropriate new leader.

Since the most important job of a board is to ensure that the enterprise has the right CEO at the helm, it is often necessary to set up an ad hoc board committee to oversee the succession process, which may include hiring consultants or search firms. Private companies who rely on their boards to help them during succession planning and execution often do a better job of managing this complex process, ensuring that the new CEO, once selected, gets off to a good start.

Roberta Sydney, NACD.DC, is a seasoned board director and former CEO serving as board chair of HEI Civil, a private, multistate, civil construction company.