Building boardroom confidence: Dispelling uncertainty through CEO succession planning

By Tobias Petri and Merja Eskola

In March, members of Board Forum Finland gathered to discuss the core issues facing boards in 2024, as they lead through a period of heightened political and economic volatility. In this instance, the main focus of the meeting concentrated on the topic of “building resilience and succession’ specifically.

A group of directors encompassing both experienced and up-and-coming board members, representing a diverse mix of organisations from established industry players to accelerating scale-ups, the Forum’s goal is to generate state-of-the art thinking, share experiences, forge new connections – and ultimately give directors inspiration to take back into their organisations.

The topics sparking intense discussion at the most recent meeting centred on the complexity of doing business against the backdrop of an unsettled political environment. More is at stake for both companies and society, as geo-political conflicts, global health crises, climate change and cyber risks escalate. A growing group of activist stakeholders are demanding influence over how companies operate, increasing the challenge of stakeholder management. In response, the boardroom requires new skills and innovation in governance, with more dynamic contributions being expected of directors

Confidence is lacking in 2024

The Forum reviewed Heidrick’s 2024 global CEO and board confidence monitor , which revealed an uncertain start to 2024. Its respondents cited the most significant issues facing their organisations as economic uncertainty, geopolitical volatility, workforce attraction and retention, shifts in market dynamics, and building and maintaining a healthy corporate culture.

But board members have little confidence in their organisations’ ability to manage these issues, with fewer than 50% believing it currently has the capabilities to handle any of the top five. In addition, 43% of directors reported little expectation of their organisation delivering on its 2024 strategic plan, while 37% lacked belief in its leadership team. More than half (57%) were unconvinced by the existing CEO succession planning process, and 54% felt executive attraction, development and retention was ineffective.

Responding to growing global complexity

These strikingly low levels of confidence among board members reflect today’s difficult business environment said Tobias Petri, partner-in-charge of Heidrick & Struggles’ Copenhagen office and regional managing partner, Nordics, adding: “Boards are struggling in this complex landscape, with directors having to spend more and more time on board work.” The number of committees is also growing as a consequence of greater business complexity, putting further demands on directors’ time.

To handle this complexity, manage their time more effectively, and combat the causes of low confidence, boards needs to shift their approach, focusing on four key areas:

De-risking CEO succession and board recruitment. Through succession planning and proactivity, increasing the frequency of competency review and refreshing board membership, and updating their ideal candidate profile.

Preparing for transformational trends and unexpected changes. By recognising their societal role, increasing resilience and black swan preparedness, and scenario planning over yet-to-arise digital and ESG challenges.

Seeking out and including diverse voices at the boardroom table. As a means to create unity in a fragmenting world, including broadening the definition of diversity to encompass cognitive as well as gender or cross-border, and aiming for a ‘one world, one board’ approach.

Strengthening advisory and governance capabilities. With an increasing focus on securing board independence, and merging problem solving functions with decision-making bodies.

Rethinking CEO succession planning

In light of the poor confidence among board directors in both existing leadership teams and the CEO succession process, de-risking CEO succession should be the priority shift for boards. Rethinking CEO selection and retention will be a key part of this, as shown by the trends evident in Heidrick’s Route to the Top analysis.

The data shows that the average CEO tenure has been decreasing, now standing at seven years for European companies. In addition, a quarter (26%) of new European CEOs have no C-suite experience, and only 44% have held a previous CEO role. This raises questions over whether companies are doing too little to incentivise CEOs to remain in the role, and also failing to sufficiently support first time CEOs, who are likely to need longer in the position to reach peak performance.

Meanwhile, analysis from US companies shows that a growing number of CEOs are in their 30s and 40s – Europe is likely to follow this trend, with Route to the Top 2023 data showing that 22% of European CEOs were appointed before age 45. Younger CEOs have a longer shelf-life and can grow with the company – therefore succession planning should include ways to target and develop younger potential C-suite leaders.

Building leadership muscle

To successfully guide their organisations through 2024, boards must develop and maintain new leadership capabilities – shaped by an understanding of both their own purpose and role, and the responsibility of the business towards society as a whole.

Progress on urgent issues such as climate change and responsible business strategy will require new, more robust skillsets, and while the priority level of different issues will shift, the ability to govern across the boundaries between them lies at the heart of effective future leadership. Greater investment in and the development of continuous, long-term succession planning both at CEO and board level is therefore vital to meet the challenges of business uncertainty and raised stakeholder expectations.