CEO succession planning has never been harder. But there are questions leaders can ask today to help better prepare for tomorrow.
From the start of the postwar era to March 2020, boards judged business leaders’ effectiveness primarily by their ability to maximize efficiency and deliver steady performance. Financial outcomes and shareholder value were the key metrics, and an important measure of a CEO’s impact was their ability to meet earnings guidance to the penny. Manufacturing systems and physical assets accounted for the majority of a company’s value. That turned the pursuit of efficiency into a discipline, like a martial art, with leaders aspiring to earn black belts. For most of this era, governments worldwide worked to make it easier for capital to follow cheap labor. Globalism gave CEOs and boards a generally stable platform for driving long-term growth, punctuated by the ups and downs of economic cycles and a few financial crises.
The last few years have brought real change. Balance sheets today have significantly more nontangible assets—intellectual property and digital capability, for example—than ever before. And a series of tsunamis have buffeted the ship of capitalism: stakeholder activism, geopolitical tension, technological breakthroughs, and macroeconomic shifts. In this new landscape, definitions of “good” leadership are continually being rewritten. Issues that were seen as lesser priorities even a few years ago—environmental, social, and governance (ESG) and diversity and inclusion—are now front and center. CEOs are expected to be fluent in addressing this ever-expanding set of concerns. “The external pull is becoming so great—to manage issues and pressures and activism—that to be the CEO in our traditional sense is becoming impossible,” a board member at a Fortune 50 company told us. “We have to rethink the role.”
Our work with boards, CEOs, and C-suite teams across many industries brings us into daily discussions on this topic: how must we define effective leadership when the starting assumption is that the environment is unstable and assets are largely intangible? There’s been a shift from quantifying leadership through metrics, which are meant to lend a scientific air to executive assessement, to understanding the qualitative attributes that lead to success. It’s about how leaders behave, how they build teams and develop talent, and who they are—not just the numbers they produce. From all these wide-ranging, highly contextual discussions, consistent patterns are emerging. These patterns cast doubt on the effectiveness of the traditional focus on “competencies” and CEO psychometrics, and instead bring a rigor and realism to conversations.
One example of how fast-moving this shift has been: numerous leaders who were at the top of the CEO succession list in 2019 are no longer deemed fit-for-purpose by company directors. Instead, boards are looking a layer or two deeper for leaders with less attachment to hierarchy or predictability. In the 10 to 15% of organizations we have worked with in which the 2019 top successor is still viewed as the best choice, those executives have often made significant, overt shifts in their leadership approaches.
Here are five key questions to ask of tomorrow’s leaders that define the foundational qualities required for success.
The ExCo Group’s Adam Bryant, David Reimer, and Harry Feuerstein wrote this article for Strategy + Business.
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