Notwithstanding the vast differences between for-profit and not-for-profit entities, both need succession plans to quickly and effectively replace CEOs/EDs, whether the departure is planned or abrupt.
Not-for-profits can learn from for-profits’ high-profile succession woes. One example is the abrupt departure of the Wells Fargo CEO, reported in the March 30 – 31, 2019 Financial Times (FT) article by Robert Armstrong and Laura Noonan. The Wells Fargo board immediately announced that the CEO’s replacement would be an external hire. But many financial analysts speculated that it would be hard to find experienced candidates, receptive to the job’s “extraordinary operational, regulatory and political challenges”. The bank’s regulator, the Office of the Comptroller of the Currency and the Federal Reserve, declined to comment publicly about what it sought in a candidate.
Despite their differences, Wells Fargo and not-for-profits would need to consider similar questions, including the following:
- Is there a succession plan? If there is one, is it up-to-date?
- Which stakeholder views are most relevant to the recruitment process? For Wells Fargo, the relevant stakeholders included financial analysts, the banking regulator, and investors. For not-for-profits, the most relevant stakeholders would include funders, partner entities, and employees.
- Do we fully understand the departure of the CEO/ED? Fully understanding the characteristics, struggles, and accomplishments of the departing leader can provide useful insight about the traits to recruit for. It can also help the organization to sell the job to a prospective candidate. For instance, some investment analysts speculated that investors and other stakeholders would likely give an external hire the “benefit of the doubt” as that person takes over the extraordinary challenges facing Wells Fargo.
Brooke Masters’ FT article from April 20 – 21 2019, makes references to issues which exploded after successors took the helm from leaders who left big and complex shoes to fill. (For example, Goldman Sach’s Lloyd Blankfein, General Electric’s Jack Welch and Manchester United’s Alex Ferguson). The takeaway is that the circumstances surrounding and underlying a leader’s exit can have a significant impact on the success or failure of the incoming leader—existing issues do not magically disappear or exit with the departing leader. They are left behind and the organization must find ways to address simmering or precarious issues related to expansion, revenue stream, accounting controls, regulatory compliance and other matters.
- What essential skills must the new hire have? Like Wells Fargo, existing operational or regulatory challenges will likely define the required soft and hard skills which the new hire must bring to the not-for-profit. For instance, a new CEO/ED may be expected to have fundraising skills to deal with a funding crisis, as well as deep connections to the community to improve damaged stakeholder relationships.
- What are the sources for prospective candidates? Internal? External? Past employees, runners-up to the departing leader, and leaders of like-entities are potential sources. Both types of organizations can utilize these sources for suitable candidates.
To fulfil their governance role, boards should develop a CEO/ED succession plan well before they need it. Boards also need to understand that succession planning engages processes and structures that are not directly related to recruiting the successor. These structures and processes include:
- Having a job description for the CEO/ED role. Clearly delineating responsibilities and the scope of the role will clarify the skills and competencies for both prospective candidates and the board, and will help to keep governance and management domains separate, conflict-free and effective;
- Performing frequent and timely performance evaluations of CEOs/EDs will help boards to identify skills or “fit” gaps for performance improvement plans, or if necessary, plans to replace an existing CEO/ED; and
- A board structure, for instance a board committee, to focus on CEO/ED recruitment, performance evaluation and succession.
Read more about the CEO/ED role and board positions in NPP 2.03 – Roles and Responsibilities in Not-for-Profit PolicyPro.
Policies and procedures are essential to good governance and internal controls, but the work required to create and maintain them can seem daunting. Not-for-Profit PolicyPro, co-marketed by First Reference and Chartered Professional Accountants Canada (CPA Canada) contains sample policies, procedures and other documents, plus authoritative commentary in the area of not-for-profit management, to save you time and effort in establishing and updating your internal controls and policies. Not a subscriber? Request a free 30-day trial of Not-for-Profit PolicyPro here.
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