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Aug 13, 2020

Replacing CEOs with suitable internal successors has become a critical issue for many organizations in recent times. Partly, this is because there seems to be a consistent dearth of internal talent, as companies likewise struggle with bringing in outside talent, which often looks promising on paper but fails to deliver desired outcomes. What’s more, this is becoming more and more challenging as CEO turnover has been rising significantly in recent times.

Meanwhile, the alarming specter of retired executives brought back to save worsening fortunes bemuses market watchers, unnerves money managers, troubles regulators, and sullies pristine brand images. (You can find examples here, here, here, and here.)

As a result, it’s increasingly important to ensure effective selection of your chief executive. One novel way to do this might be to democratize the selection process. In other words, what if CEO selection was an election?

How to Hold a CEO Election

1. Your CHRO maintains an updated and ranked confidential list of potential candidates, based upon defined competencies informed by the incumbent CEO and ratified by the board of directors.

2. The CHRO approaches the top three candidates at least six months before the expected departure of the incumbent leader to get consent for consideration. If someone doesn’t want the elevated role, then the next person on the list is approached. Subsequently, finalized names and their credentials are made public

3. The candidates attend at least three debates moderated by the board chair or another director. The audience should be your employees, whom the moderator should invite to ask questions. The moderator should also ask questions provided by other board members (somewhat analogous to a structured interview).

4. Hold an election (supervised by the board) at least three months before the incumbent leader is set to leave. Every full-time employee, regardless of position within the organizational hierarchy, should be able to vote in person, by mail, or online.

5. The winner is the candidate who gets over 50% of the vote. If no candidate does, then you conduct a second round of voting 15 days later with the top two candidates.

6 Publicize the results internally and externally, making sure also to notify the regulatory authority.

7. Coordinates orientation activities in conjunction with the incumbent leader and the functional heads. Also organize a farewell ceremony for the outgoing leader to reinforce the public image of a smooth handover.

8. The new leader takes office to drive the organization with renewed vigor.

As an alternative, you could replace employees with shareholders in the above process so that it is the latter who cast votes to choose the organization’s next leader. Or you can adopt a hybrid approach that allows both employees and shareholders to vote. 

For instance, each shareholder and full-time employee can get one vote. Or you can give each group 50% of the vote, whereby the winner would be the candidate who wins the majority of each party. In case the person receives a majority of only one party, you can conduct a second round of voting 15 days later. The winner would be the one who earns an overall majority by adding the percentage votes from both parties. 

Potential Advantages

Turning your CEO selection into an election has numerous benefits: 

  • A transparent process that exposes and highlights performance, accountability, communication, and fairness helps achieve buy-in from stakeholders.
  • Stakeholders feel more included; the voice of the employee is heard. In turn, this can fuel employee engagement.
  • The process compels candidates to formulate insightful and meaningful policies and plans to robustly defend and justify during debates.
  • Candidates feel incentivized to forge productive alliances with influencers (senior employees, union leaders, star performers, etc.) for a healthy employment partnership.
  • The process counters the argument by skeptical quarters of unjustly rewarding diversity at the expense of performance.
  • The (s)elected CEO is empowered to take bold and sound decisions in line with the strategy conveyed during the election.

Potential Disadvantages

It’s also important to watch out for possible drawbacks to this approach (in most cases, though, you can neutralize or minimize potential pitfalls by fostering a culture built around robust core values and with performance-driven talent management):  

  • Power brokers might feel threatened and may resist measures to reverse the transformation of regressive organizational politics into progressive organizational practices.
  • Supporters of losing candidates may fear reprisals and seek employment at other organizations.
  • A disgruntled board whole preferred candidate did not win may undermine the selected CEO.
  • The process may result in longer tenures of incumbent CEOs, which might be viewed as a burden more than a benefit. (You may consider term limits.)
  • Part-time and hourly workers, especially those on renewable contracts, might feel the need to be part of the selection process. (It may be worth giving them a say.)
  • Listed companies might have to revise their paperwork submitted to the relevant stock exchange in terms of leadership selection procedures, as well run an education campaign for shareholders.
  • Candidates vying for both CEO and board chairman might feel alienated due to separation of powers for effective accountability.

Political elections can often seem like a circus, but that doesn’t mean that CEO selection would similarly be chaotic. Perhaps it’s worth exploring this new method for ensuring your organization’s success.

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