Children's Voice Article, November/December, 2004
Succession Planning for the Not-For-Profit Chief Executive
By Charles L. Baker
In today's nonprofit world, the primary job of the board of directors is recruiting, selecting, and nurturing the chief executive officer. And thoughtful board members are concerned. Many CEOs of successful child welfare organizations are part of the baby boomer generation, and they're thinking about retirement.
That's why succession planning must be ongoing. It isn't a question of if, but when the current executive will leave the organization. Whatever the cause, the sudden loss of leadership can be disruptive to staff, the community, donors, customers, and--most importantly--clients.
There are emergency transitions, and there are well-planned transitions. The board's approach to succession planning is critical to both, and the subject of transitions should be a topic for discussion at least annually. Just as every good CEO is thinking about who will step up at the departure of a key member of the management team, the board must have a written plan for replacing the CEO.
A solid, balanced contract between the board and the CEO is the place to start succession planning. A good contract will cover each type of termination, from voluntary resignation to termination for cause. In addition, the board should have a written plan for leadership in case of an emergency, such as the serious injury or death of the CEO.
In a time of transition, either in an emergency or when either the board or the CEO thinks a leadership change is needed, succession planning is more critical. The first step, however, may not be hiring a search firm.
Transition is a time of anxiety, but it also presents an opportunity for the board to deepen its knowledge of the organization's service, reexamine the organization's mission and vision, and commit to the board's role in governance and fund development to advance that mission.
This process can be facilitated by working with a consultant during the transition. It's critical that the consultant have both nonprofit management experience and specific knowledge about the organization's field of service. CWLA can be helpful in identifying a qualified consultant.
In most transitions, the board should consider appointing an interim CEO. Immediately hiring a new executive--especially after the departure of a strong, long-term leader--without the benefit of a planned interim CEO can result in significant disruption to the organization.
Often, the organization winds up with an "unintentional interim"--a new CEO who is fated to fail in a struggle against the organizational culture of the former executive. Despite the new executive's talent, he or she doesn't last in the position for more than a year or two, thus requiring another search process but without the benefits a planned interim can provide.
These issues are exacerbated if the board purposely seeks a new executive exactly like the past CEO, or someone without the flaws of the past executive. Such a hiring mistake usually results in the loss of talented staff, a decline in the quality of services the agency provides, and moderate or severe revenue decline.
If brought in from outside the organization, this planned interim CEO should not be a candidate for the permanent position but should be dedicated to assessing the organization's strengths and weaknesses, with an eye toward shoring up obvious concerns. Significant reorganization, including dismissing some problematic staff, may be necessary. The interim CEO can make these painful changes to prepare the organization for the successful appointment of a new CEO. Although most interim projects can be accomplished in six months, some organizations may require the services of an interim CEO for up to two years.
Following the tenure of a successful CEO, many organizations find that promoting from within the organization is an option. With the proper contractual arrangement, such an individual may serve as an interim CEO for a period; if the interim period is successful, the board may choose to elevate this individual to CEO permanently. Or the board could undertake a traditional executive search process, and the interim CEO could return to his or her former position once a permanent CEO is hired.
Steps in the Transition Plan
The following steps should be a part of the board's transition plan whenever it becomes necessary to replace the CEO. The initial parts of the process may be delegated to an ad hoc committee and a qualified consultant; the board should consider including former board members and significant donors on the committee. Approving the written plan, however, is the prerogative of the Board.
After completing these steps, a search committee of the board should proceed with a process for selecting a new CEO. The committee may decide to hire a professional search firm to help with all or part of the process, but it's critical that the committee insist an executive search firm or consultant understand the culture of the organization and the community to create a careful match for the successful candidate.
- Develop a description of the CEO's position and responsibilities before the selection process. What knowledge, experience, skills, and talents are necessary?
- Outline expectations for both the executive and the board. How should the executive and the board communicate? What are the various roles of both the board and the CEO in fund development? Are both parties responsible for both success and failure? How will the CEO's performance be evaluated? How will the board's performance be reviewed?
- Fully assess the organization's strengths and weaknesses. How do the organization's customers rate the quality of the service? What is the staff's satisfaction level? How does the wider community value the organization's contribution?
Continued Succession Planning
When the board has selected a new executive, the parties will develop an employment agreement (see "Why Have an Executive Employment Agreement," page 35), and the board will share with the new CEO the results of the three steps above. The work done in developing the board's knowledge and commitment to the organization's success will greatly enhance the new CEO's probability of success. As new board members are added, the three-step process should be repeated to engage them in ownership of the agency's mission.
Following selection of the new CEO, the board must nurture the new executive's continued growth and learning. When thought- fully designed as part of a collaborative relationship, even performance reviews can be a part of a growth process for the CEO and the management team. New knowledge and skills are always necessary. The board should develop adequate provisions for the CEO to participate in local, state, and national associations, to take advantage of training opportunities through conferences and university education, and to ensure continued individualized learning and support via executive coaching.
Succession planning is an ongoing process. The board should collaborate with the CEO to design an emergency succession plan, and the CEO should collaborate with the Board in designing a succession plan for of all key staff and the training and development of future leaders and managers.
The environment of laws, regulations, funding options, and service delivery is constantly changing for nonprofit organizations. Great organizations are those able to grow and last over time. Attention to succession planning is vital to that journey.
Retired CEO of Buckhorn Children's Foundation/Presbyterian Child Welfare Agency, Buckhorn, Kentucky, Charlie Baker is President of Baker & Company, Louisville, Kentucky, and a contract consultant providing assistance and support to CEOs and boards of child welfare organizations in succession planning, CEO contract development, interim selection, and executive search.
Why Have an Executive Employment Agreement?
The executive employment agreement, or contract, between the Board of Directors of a nonprofit agency and its chief executive officer (CEO) protects the rights and spells out the benefits of each party. In today's environment of raising expectations, shrinking funding, and increased public and media scrutiny, the successful nonprofit agency must have a talented CEO. This one position is increasingly critical, since, in the public eye, the CEO personifies the agency. Paradoxically then, because of the very central nature of this position, the Board has to find a way to both retain a highly skilled person and protect the organization from disaster should a change become necessary.
Benefits for the Board
- Enables the Board to retain the services of a skilled, experienced CEO. Good executives are hard to find, and stability at the top of the organization is generally positive for long-term community relations and fund development.
- Protects the agency's good name and the freedom to act without hesitation. The Board is ultimately responsible for the organization, and Board members' first obligation is the selection of the CEO. Sometimes, a change of direction is necessary.
- Prevents angry and hasty action in a time of crisis. When a change is inevitable, each step in the process should have been considered in advance.
Benefits for the CEO
- Allows the freedom and security to be courageous in the role of child advocate. A good executive will make political enemies if she or he speaks clearly about the needs of children and families. An agreement will permit that freedom.
- Provides a moderate level of security regarding her or his personal future. The agreement should both protect the reputation of the executive and provide several months of financial security. This balances the Board's freedom to make a decision to terminate.
Benefits for Both Parties
- Clarifies the unique partnership between the Board and the CEO, and articulates the central role of the CEO's position in the organization. Of all the jobs in the organization, the nature of the CEO's role requires an individual agreement.
What Is Included in the Agreement?
A well-written employment agreement can address these very divergent needs for both parties--the Board needs the freedom to act quickly and protect the long-term interest of the organization, while the CEO needs recognition for the personal risk-taking required in this unique role in the organization.
The executive employment agreement should include
In addition, I recommend a final section requiring arbitration or mediation of disagreements regarding the agreement.
- the term of the agreement,
- the CEO's salary and compensation,
- provisions for the CEO's continued growth and learning, and
- detailed obligations for terminating the agreement.
Email the author at firstname.lastname@example.org for a complete essay on the content of the executive employment agreement.
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