Article

CEO Retirement Uncertainty

board members holding puzzle pieces with red piece representing the CEO
Deedee Myers Photo
Chief Executive Officer
DDJ Myers Ltd

4 minutes

Not preparing a plan for the chief exec's departure leaves your credit union at risk for lack of strategic direction and decreased employee morale.

Sponsored by DDJ Myers

Deciding to retire is a monumental, life-changing event for many CEOs. Some sit on the fence for a few years or have a set target date, while others stay in the role and may or may not be effective. One credit union board chair recently said, “Our CEO has a set date of April 15, 2018.” Another chair had a different story: “We don’t know when he will leave yet; it might be in the next 2–5 years.” The latter response, a clear indication of uncertainty, sets off my risk-alert bell.

Boards of directors provide oversight for overall enterprise risk management. A plan for steering the ship is needed even  before the CEO announces her “by when” date. Not preparing a plan and community strategy leaves the organization at potential risk for lack of strategic direction and employee morale.

Flight risk for the executive team is also a concern; they want to feel safe in knowing the plan and how they fit into it. Greater uncertainty surrounding the CEO exit date correlates to an organization at risk.

Practical and Proactive Steps to Managing Risk of Lost Leadership

1. Inquire whether the CEO may be thinking about a transition. Knowing even a range of exit dates your CEO is considering gives you a window to strategically plan to manage the process of CEO selection. “We don’t know, and she won’t tell us” is not acceptable.

Ask for a notice. For example, a CEO advises the board of his intention to leave two years before that anticipated date. The CEO has the option of changing his mind and requesting an extension. Notification supports implementing a viable and systematic succession planning process.

2. Assume the end-of-term contract date for CEO employment is a potential transition time from the CEO perspective. If the contract is a three-year term, ask the CEO 12–18 months in advance of term expiration about his intentions. Keep checking in as the expiration date gets closer.

If both parties mutually agree, then re-up the contract six months in advance. An evergreen clause provides an automatic contract renewal, yet having the conversation, too, adds tremendous value and mitigates potential risk.

3. Assume the CEO may decide to leave before the end-of-term contract. The number of attractive CEO jobs continues to increase.  The board should have a succession-planning scenario for any event that results in the CEO leaving.

4. Proactively manage the process for developing internal candidates through your CEO. A binding agreement on the CEO’s roles and responsibilities for developing internal candidates needs to be made explicit. The board needs to set clear expectations on the process, desired outcomes, progress reports, and timing. Use an external facilitator to outline the steps of internal candidate development if the majority of the directors have not been through the process within five years.

5. Plan for the departure of key, high-performing executives within 18 months of CEO retirement. Key executives tend to leave when there is a lack of clarity in communication. All employees want to know the plan and who their boss will be. An exodus of top-performing executives is plausible but can be mitigated with two-way communication.

6. The chair should meet with direct reports to the CEO. Tell them they are valued and that their contributions are appreciated, and ask for their continued support during the transition. If the chair meets with them and ONLY discusses an external search without acknowledging their value, flight risk becomes higher. Use common sense and acknowledge your appreciation of their contribution.

7. Internal candidates need a CEO development plan  that should start 5-10 years in the future. Unfortunately, such a plan often does not happen until 12-18 months before the CEO transition date or, in many cases, never. Give internal candidates a long runway to develop.

8. Get help! A CEO transition is a lot to manage, and you want to make the best decision. Take advantage of industry subject matter experts for maximum success.

The board increases their organization knowledge through implementation of a systemic CEO transition plan and communication strategy. One upside to such a process is a more collaborative board with increased quality of communication.  A major upside is the board takes effective action to mitigate potential enterprise risk.

Deedee Myers, Ph.D., MSC, PCC, is CEO of CUES Supplier member and strategic partner DDJ Myers, Ltd., and co-founder of the Advancing Leadership Institute based in Phoenix. She is a change agent for individuals, teams, and organizations in being high performers. Her consulting and coaching organization facilitates leadership development in organizations, evolving boards into high performers, and taking strategic planning into effective action. She is a known subject matter expert on succession planning, board governance, board recruitment and renewal, leadership development and transformative change.

CUES Learning Portal