The Starbucks CEO change and the big topic boards struggle with
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Starbucks recently announced that Kevin Johnson will be stepping down as CEOOn April 4, Howard Schultz, the founder of the company will once again lead the organization. This brings the crucial process for succession planning to the forefront.
A board of directors’ most significant task is selecting the right leader to lead an organization. Mellody HOBSON, independent chair StarbucksAccording to the board, Johnson had been notified a year prior that Johnson wanted to retire and that an interim CEO was expected by fall.
The right leader is essential to ensure that even the most inventive strategies and the most impressive financials do not fail. The Covid-19 pandemic and the rise of stakeholder activism is causing changes to succession planning. Boards are being forced to reconsider the qualities they look for in top leaders, such as the ability to handle rapid digital transformation and flexible, remote work schedules.
Board members are increasingly required to replace CEOs during their tenures. 2020 56 S&P 500 CEOs resignedSpencer Stuart, an executive search company, reported that there was a 30 percent increase in the number of people who quit over the past decade. 20 percent of those who quit their jobs in 2020 did so because they felt pressured, compared to 13% one year ago.
Too often boards get caught unawares when the CEO leaves, is removed, or has to resign. Maria Moats (leader of PwC’s Governance Insights Center), says that if you believe the main responsibility of the boards is to get the right leader, it should not be surprising when one is needed. It is essential to have an emergency plan.
According to her, succession planning is often a very painful and difficult task because of human nature. It can also be uncomfortable.
The job of talking with a new CEO about his or her process for replacing them is not something most board members love about it. According to a PwC survey, the number one reason directors have difficulty planning for more effective and timely succession is that their current CEO performs as expected. Therefore, there is little urgency.
Priorities competing
Another obstacle to improved succession planning is the board’s priorities. When a company is early in a CEO’s tenure, there are a number of competing business initiatives that are critical for the board, says Stephen Schwanhausser, global managing partner at Heidrick & Struggles.
He says, “If the board doesn’t make succession planning a priority early on in the process it will be harder for them to have those conversations as they approach the point where change is imminent.” It is essential that boards plan ahead so they are able to manage all other priorities and still do the job well.
The board should be able to find the best leader for the company. If that is the case, the CEO shouldn’t be surprised.
Maria Moats, Leader, PwC Governance Insights Center
Moats believes that the best way to prioritize succession planning is to have the entire board review the plan once per year. It is important to include details regarding the candidates development process, goals and timelines, as well as the timeframes of each step.
Include the CHRO
Here is where the chief HR officer steps in. Moats explains that the CHRO is the person responsible for talent management in the company if the board controls the CEO succession planning. The board can look at potential candidates from one level lower than the CEO by including the CHRO. If an internal candidate is selected as the new CEO — as is often the case, Moats says — the CHRO will understand the impact on other senior executives and what it will take to retain top talent. Moats says this is a crucial point in a competitive job market.
recent PwC surveyThe 88% majority of respondents stated that hiring and maintaining talent within the company is their top priority. It surpasses digital transformation and new product creation.
Aherne Executive Search CEO Cynthia Stoldt says that she has seen a shift in the priority of her company’s CEO search. According to her, employee retention is such a critical issue that everyone now pays close attention how transitions are made.
One example she gives is a CEO search for a consumer firm. It was enjoying double-digit expansion and managed to stay afloat during the Pandemic. Stoldt said that the employees were very motivated and felt safe.
Stoldt’s office was given the task of finding a replacement for the CEO. She says, “This leader was extremely confident and energizing. We needed to replace him by someone who would instill this confidence in a manner where the company wouldn’t lose any of their top-tier talent.” Stoldt said that she wouldn’t have prioritised this kind of “stylistic match” in the past.
She says, “The current searches are being made with the goal of retaining top talent.”
Stakeholders demand companies reflect the values they believe in, and CEO tenures are decreasing. It’s up for boards to identify the CEOs who will best embody these changes.
Schwanhausser says that the next generation demands very different expectations from their leaders. This puts different pressures on CEOs and forces boards to reconsider the types of leaders they choose.
Apply at to join the CNBC Workforce Executive Council cnbccouncils.com/wec.
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