Boards of directors are facing shifts in leadership. Even today, we’re faced with the negative consequences that experience has on our organization and that impacts on our business’ culture. Five recommendations for achieving the jump to successful strategy.
Organizations today have transformed into a generational Tower of Babel. While Baby Boomers are being let off, Gen X and Y are occupying management positions and Gen Z is installing their digital footprint. In only ten years, Generation Alpha (children born in or after 2011) will begin doing their part. More than ever, organizations are offering integrated perspectives, life stories and needs. This can be seen especially within the board of directors, where an entire generation of CEOs is preparing for its departure. Most often, they end up switching from leading roles to a strategic position of direction within the company. However, while this shift should be an opportunity to take advantage of their experience while enjoying a more relaxed day-to-day scenario, it often represents a problem that can jeopardize the foundation of the organization’s culture.
Olivia’s experience in guiding companies in transformation processes has shown that the root of the problem is emotional rather than rational. Even the most elaborate and consensual protocols tend to fail when facing the fear of handing over control to a new CEO.
Family businesses are a perfect reflection of this. There comes a point when—due to age, health reasons or other motives—the job is passed on to the next generation. If the following generation is unable or unwilling to take charge, management is professionalized. In the best case scenario, the business’ successful shift in leadership will allow their founder’s spirit to endure and introduce new ideas for direction that will renew the company’s purpose. However, in worst case scenarios, the battles that arise from reluctance in handing over the position of CEO can create frustration that ultimately contaminates the rest of the organization. Likewise, if the organization is part of an economy that’s influenced by other family businesses, the consequences could worsen. With 80% of their over 850,000 businesses being family businesses, Paraguay is an example of this. Spain and Germany, with 89% and 95% respectively, also serve as examples.
Five tools for achieving simple leadership replacement
More than ever, the future of our organizations depends on a different, refreshing and innovative vision. This is why achieving a smooth replacement of leadership that enables their impact is one of the most important challenges for our businesses.
At Olivia, we’ve defined five pillars that reappear and help tackle leadership replacement, independently of the market. Their main goal is to prepare the grounds for the incoming CEO to be greeted by a workspace that’s free of previous baggage and biases from day one.
Communication: the entire organization should be involved and informed about the decision to renew leadership. Achieving this is about close, structured communication. The goal is not to control the narrative (rumors are inevitable) but to channel and facilitate it in order to identify disagreements that, if left unattended, may produce a snowball effect.
Onboarding: The time and dedication received by the successor from the previous CEO will define their level of confidence throughout their first day of work. This task should not be delegated to interim management or mentors, as frequently occurs in family businesses. The time CEOs spend side by side with their successors will empower the upcoming leaders, especially among their collaborators.
Compensation: Though often ignored, compensation is a key factor. Using a flexible model to remunerate successors for their redirection period is a common mistake. Based on our experience, assuring a permanent income is the most efficient solution. This strategy eliminates pressure when taking control. Though variable incomes are valued among senior management, they tend to be a challenge when dealing with instability.
Planification: It’s absolutely necessary to carefully plan out the process of succession. The owner or CEO should dedicate time to evaluate what the new CEO should keep doing, what they should maintain control over and their new input for the organization. This plan should be mutually agreed on in order for the new CEO to be faced with realistic tasks when taking over.
Agreeing on the moment of planification is recommended, so that the new leader is included in this strategic planification. This way, he or she will feel integrated, be a part of the proposed objectives and have the possibility to contribute their experience and commitment.
Cultural Fit: Finally, the most important aspect. Despite this, it’s frequently underestimated. Apple, whose board launched a search for a new CEO to replace Steve Jobs, serves as a perfect example of this. In his biography, “Steve Jobs” (Simon & Schuster, 2011), Walter Isaacson described the consequences of Apple’s considerable mistake of incorrectly measuring cultural fit.
In a world defined by constant change, knowing how to plan and facilitate shifts in management defines the future of our organizations. These five pillars allow us to manage our most delicate “variable”: human nature, and to leverage it in order to loosen ties.
By Claudio Ardissone, Managing Director at Olivia in Paraguay