Starbucks CEO changes and big topic forums struggle with it

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The recent news from Starbucks that Kevin Johnson will step down as CEO on April 4 and that founder Howard Schultz will once again lead the company puts the critical CEO succession planning process back in the spotlight.

Selecting the right leader for an organization is arguably the most important task of a board of directors. Mellody Hobson, independent chairwoman of the Starbucks board, said directors were aware of Johnson’s desire to step down a year ago and that a new CEO would be in place by the fall.

Even the most innovative strategies or the best finances are not enough without the right leader at the helm. Today, changes as a result of the Covid-19 pandemic, coupled with growing stakeholder activism, are reshaping succession planning. The ability to manage rapid digital transformation, flexible and remote schedules, and the overall changing nature of work means boards need to rethink the skills they are looking for in a high-level leader.

Directors also need to replace CEOs more often during their own terms on the board. In 2020, 56 CEOs of the S&P 500 have resigned, a 30% increase over the previous decade, according to data from executive search firm Spencer Stuart. Among those who quit in 2020, 20% did so under pressure, compared to 13% a year earlier.

Yet too often boards are caught off guard when a CEO retires, resigns, or is forced out. “If you think the primary responsibility of the board is to put the right leader in place, and it is, then a company should never be taken by surprise when a CEO needs to be replaced,” says Maria Moats, head of PwC’s Governance Insights. Center. “There should always be a contingency plan in place.”

One of the reasons succession planning often turns out to be such a painful process, she says, is simply human nature: it can be an uncomfortable conversation.

Talking to a newly installed CEO about the replacement process is not what most board members enjoy about their jobs. A PwC survey shows that the main reason directors struggle to plan for faster and more effective succession is that the current CEO is working as expected and therefore there is no rush to focus on the process.

Competing priorities

The other barrier to better succession planning is often board 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.

“If a board isn’t prescriptive about succession planning early in the process, it becomes harder to have those conversations as they get closer to the point of change,” he says. “Boards need to plan for it far enough in advance to be able to do it thoughtfully and clearly while managing all the other business priorities.”

If you believe that the primary responsibility of the board is to put the right leader in place, and it is, then a company should never be taken by surprise when a CEO needs to be replaced.

Maria Moats, Leader, PwC Governance Insights Center

Moats says the easiest way to prioritize succession planning is for the full board to review their plan at least once a year. The goals of the process, the details of the candidate development process, and the timelines for each step the board will take should all be part of the planning process.

Involve the CHRO

This is also where the human resources manager comes in. “If the board is responsible for the CEO succession planning process, then the HR director is responsible for the talent management role in the company,” Moats says. The involvement of the CHRO gives the board the opportunity to review candidates at a level below the CEO. 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. In a highly competitive job market, this is particularly important, adds Moats.

A recent PwC survey shows that hiring and retaining talent across the organization (not just the C-suite) is the top priority for 88% of admins surveyed, ahead of digital transformation initiatives and new product development.

Cynthia Stoldt, CEO of Aherne Executive Search, says she sees this shift in focus in her company’s CEO searches. “Because employee retention is so critical now, everyone is paying very close attention to how transitions are done,” she says.

As an example, she cites a recent CEO search she conducted for a consumer company. The organization was experiencing double-digit growth and was able to avoid layoffs throughout the pandemic and beyond. “The employees there felt very safe and motivated,” Stoldt says.

For personal reasons, the CEO had to resign and Stoldt’s company was tasked with finding his replacement. “This leader was very confident and dynamic and we needed to replace him with someone who would instill that confidence in a way where the company wouldn’t lose any of its other top talent,” she says. Stoldt says seeking that kind of “stylistic conformity” was probably something she wouldn’t have prioritized in years past.

“The searches are now all done with the goal of retaining the best talent,” she says.

As CEO tenures shrink and stakeholders demand that companies represent the values ​​they hold dear, it’s up to boards to find the types of CEOs who can best reflect these changes.

“The next generation of employees demands very different things from their leaders,” says Schwanhausser. “It puts a different strain on the CEO’s role and forces boards to rethink the kinds of leaders they’re going to choose.”

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Jessica C. Bell