HOW TO RUN A WINNING CEO TRANSITION

One of Hubert Joly’s proudest professional accomplishments is the way he and his board engineered a successful transition when he stepped down as chairman and CEO of Best Buy. Here’s his deep dive on how that succession process unfolded and what other CEOs can learn from his experience.

BY HUBERT JOLY

OONE OF THE THINGS I’M PROUDEST OF in my career is the highly successful CEO transition we were able to orchestrate when I stepped down as CEO of Best Buy. It happened smoothly, without the company missing a beat.

My successor, Corie Barry, was able to forge ahead, accelerate the company’s growth strategy and effectively deal with the pandemic—one of the most challenging, multifaceted crises the world has ever experienced—just nine months into her tenure.

While CEO succession is generally recognized as one of the most important keys to the long-term success of any company, the topic isn’t well researched or documented. In addition, the CEOs of many companies typically have little to no practice with making a CEO transition. When planning my succession, I interviewed a number of recently retired CEOs on this topic and had conversations with some of the world’s leading search firms that typically assist companies in this process. I also kept in A horse race can mind my own trials and errors during my career. create a politicized My aim is to share these insights so that other environment, boards and CEOs have a undermine roadmap for how to do it successfully. collaboration and A focus on succesincrease the risk of sion planning can feel counterproductive, for at losing valuable talent. least four reasons. First, early on in a CEO’s tenure, it can appear to be irrelevant. Once you get past that point, it feels a little bit like shooting in the dark, as you don’t know exactly when you’ll need to make the transition. Third, the process can put an emphasis on the gaps in potential candidates in an unproductive and sometimes emotional way. And finally, it’s a zero-sum game, where there’s only one winner and several potential losers. Not so good. My research and experience led to this conclusion: Success comes from careful planning and execution over the entire tenure of the outgoing CEO—with a focus on “executive development” rather than “succession.” This requires a threestep approach typically executed over 5 to 10 years.

STEP 1: BUILD A STRONG FOUNDATION

While a CEO’s succession may seem very far away in their early years, there are four things you can and should do to lay the groundwork for when the time comes.

1. Focus on executive development, not

succession. In 2016, we had our annual in-depth talent review with our board, which included a discussion on potential successors for the CEO role. I found that discussion rather frustrating. We were debating whether Suzy or Jack could be potential successors, with rather subjective points of view being exchanged and gaps being highlighted, in a context where the board and I saw my succession years away. It didn’t feel like a very productive conversation.

Then one of our board members brought up the idea of using an executive development firm to help with the development of the two or three potential successors we had identified. Instead, I decided to use their services with every executive team member, myself included. The focus would be leadership growth and how all of us could function more effectively as a leadership team, rather than helping just two or three individuals prepare for a distant, abstract event.

It worked well because all of us needed to grow as leaders. The entire team benefited, and we avoided creating false or premature expectations. The mental shift from succession planning to executive development was liberating for everyone. And while the focus on succession had shifted, we could still see, as a board, which team members were progressing.

2. Develop strong board/committee

chairs. A strong board has been crucial to the success of the transformation at Best Buy. A strong board can give “superhuman” powers to the management team by bringing skills relevant to the tasks at hand, including for CEO succession planning.

Very early on in my tenure as CEO, I started to work with our chair, Hatim Tyabji, and Kathy Higgins Victor, our head of nominating and governance, on building the best possible board of directors for Best Buy. We wanted a board with a diverse, relevant and current set of skills,

Driving Change

When business leadership, entrepreneurial skills and philanthropy intersect, it can accelerate progress where it’s been stalled for decades

TO EFFECT REAL AND SIGNIFICANT CHANGE, it takes more than good intentions—it takes vision and talent. That’s where you come in. If you let the same qualities that made you successful in your professional life inform your philanthropy, you can accelerate progress where it’s been stalled for decades. In the business sector, many of the most exciting and profitable enterprises come from revolution, not evolution. Philanthropy, like business, is also ripe for disruption. There’s no shortage of challenges to tackle, but conventional methods of giving— soliciting grant applications from nonprofits and awarding funding to whomever writes the best proposal—can have limitations. Entrepreneurial philanthropy is a different approach to solving social problems that is especially effective for business leaders and change agents who want to create lasting change in the world and build a legacy for themselves, their families and their communities. In its simplest form, entrepreneurial philanthropy allows you to select the problem you want to focus your efforts and resources on, and then leverage all your skills to figure out the best ways to attack the problem and carry out your agenda. If you are inspired by the idea of merging your personal values and business acumen to improve the world around you, here are six suggestions to get you started. ➊ Conduct Your Pre-trip Inspection: What are the advantages that could make you a successful social innovator? Where are you uniquely qualified to make a difference? Many small funders with business knowhow and professional connections are often able to accomplish goals that would elude the staff at multi-billion-dollar foundations. ➋ Turn on the Ignition: What are the issues that build upon your passion and strengths? How you spend your money is ultimately more important than how much you spend. Championing an issue that emanates from your life experiences could help bring attention to “orphaned” issues that have been overlooked by other philanthropists or are too controversial for governments to tackle. ➌ Find Your GPS Coordinates: Do research to understand the contours of your chosen issue—and solicit input from people impacted by the problem: nonprofits dedicated to a related mission, consultants and other philanthropists. Knowing who else is working on the problem, what’s already been done and what impact that work has had can help you avoid wasting money and could yield some important allies. ➍ Check Travel Conditions: Like success in business, success in philanthropy is dependent on situational factors. To what degree is the environment receptive and ready for change? If issues are ripe for action, think about assessing social urgency, feasibility and stage to understand how much attention and support you can expect—and where more efforts might be required to increase awareness and prioritization. ➎ Know Your Destination: Before you begin work or commit a single dollar, define your ultimate goal in detail. If you have, say, a 20-year solution horizon or longer, think of specific mileposts that will help you mark progress. This will focus attention and efforts on what can be reasonably accomplished and help keep you energized by working toward attainable near-term goals. ➏ Use All Your Gears: Once you know what you want to do, how are you going to do it? With a private foundation, there are a wide range of tactics at your disposal that support innovation and efficacy including: advocacy, media campaigns, awards and scholarships, mission-related investments, research and polling, litigation, demonstration projects, coalition building, documentary film and direct charitable activities, among many others. Find the approaches that match your problem, its stage and the conditions on the ground. In sum, be the entrepreneur that you are and leverage your strengths to drive change. To learn more about entrepreneurial philanthropy or private foundations, visit foundationsource.com.

EXECUTIVE CHAIR 101

Do's and don’ts for this key post-CEO role—with the goal of supporting the transition, helping to set up the new CEO for success.

DO’S✓

The CEO reports to the board, not the executive chair.

The CEO and executive chair should typically interact through regularly scheduled one-on-one meetings. In addition, the executive chair should be available at the request of the CEO.

The executive chair can provide advice and be consulted on strategic direction, M&A activities, strategic partnerships, investor communication and key organizational/leadership matters.

Some useful work for the executive chair could include government affairs, community relations, leadership development and executive coaching— but it should all be done under the supervision of the CEO.

DON’TS

The executive chair should not attend regular internal management meetings, except at the request of the CEO.

Like other board members, the executive chair should not reach down into the organization without the knowledge and support of the CEO (except in their capacity as chair of the board). This is the “nose in, fingers out” (NIFO) principle. Of course, in the case of delegated missions, the executive chair can work with the staff of the company, under the authority of the CEO. from experience with digital transformations and technology services to broad business and organizational leadership skills. We then paid specific attention to making sure we had highly qualified chairs for, and the right skills in, each of the board’s committees. We ended up with an amazingly competent, highly engaged and diverse board, including a majority of women and three Black directors.

This proved to be essential to the resurgence of the company in general and to everything related to people and people development, including CEO succession planning. For example, the fact that our head of nominating and governance had vast experience with this topic, as a former CHRO and consultant in the field, was incredibly helpful. The fact that we had several recently retired CEOs on the board and on the various committees added a specific type of wisdom and relevant experience when the time came to administer the succession process.

3. Develop external benchmarks over

time. Most of the time, the board ends up choosing the new CEO from within. That was the case with my successor, Corie. But it’s a key responsibility of the board to ensure that the chosen candidate is the best possible candidate, not just a convenient one.

Looking for or evaluating potential external alternatives at the time of the actual succession decision can be a late and risky proposition. A better approach is for the CEO—and certain members of the board—to develop a list of potential external candidates and to get to know them over time. This way, at the time of the decision, the board can compare internal and external alternatives without necessarily having to reach out to external candidates at a delicate time.

4. Avoid a preset timeline and horse race. I am not a fan of preset timelines, even though they have sometimes been

used, as was the case with the highly publicized succession of Jack Welch, leading to the appointment of Jeff Immelt as GE’s CEO in 2001. A horse race can create a politicized environment, undermine collaboration and increase the risk of losing valuable talent.

STEP 2: RUN AN EFFECTIVE CEO SELECTION PROCESS

Late in 2018, I began to reflect on the right time for me to pass the baton to a next generation of leaders. We had accomplished what I Even though you may feel you know had set out to accomplish when I took the job. I felt that the team we had dethe candidates well, now is the time veloped was ready to take over, and I felt it was important for the company to to perform a have a team ready to lead with a long-term focus. In formal, objective addition, I was ready to assessment start a new chapter in my life after 20 years or so of of each one. being a CEO. This triggered the process to select the next CEO of the company. Here are three things you can do to ensure the effectiveness of your process:

5. Form a strong committee and staff it

with external help. Properly structuring and resourcing the process is important. Our first step was to appoint a board committee in charge of conducting and leading the process. Ours had all the members of the nominating and governance committee as well as the members of the compensation and human resources committee. We wanted the combined skills of this group to do the work. Also, while selecting the next CEO is ultimately the responsibility of the full board, we felt that appointing a committee to do the bulk of the work was best.

The committee was supported by two firms: a firm with great expertise in succession management that had worked extensively with the board over the past several years on board recruiting, and the executive talent development firm we had been working with since 2016.

A debatable and sensitive question is the role the exiting CEO should play in this process. At one extreme, should the CEO orchestrate and lead the process? At the other, should the exiting CEO be left out? My personal sense is that the CEO should be involved, e.g., provide input to the committee, but not lead or drive the process. While the exiting CEO may know the potential candidates best and is likely to have a strong, well-informed point of view, having the committee chair lead the process is a good way to ensure that all voices are heard and that the process is conducted in an objective fashion.

Another important consideration has to do with gender. According to Sally Helgesen, author of How Women Rise: Break the 12 Habits Holding You Back, women tend to react differently to promotion opportunities. Typically, when men are 80 percent ready for a promotion, they will happily raise their hand for the next available opportunity, whereas when women are 125 percent ready, they may be reluctant to raise their hand. Addressing this discrepancy requires either the CEO or select board members to speak directly with potential female candidates and have an honest and open conversation with them about their reluctance to apply for the job.

6. Perform a formal assessment. Even though you may feel you know the candidates well, now is the time to perform a formal, objective assessment of each one. The first step will naturally be to develop forward-looking criteria linked to the strategy. You are obviously recruiting someone to lead the company into the future, not simply manage the present. In other words, “What got you here won’t get you there,” to quote Marshall Goldsmith’s best-selling book. The second step will be to have the candidates assessed by the third-party firms supporting the committee, inclusive of benchmarking their current abilities and assessing their potential.

7. Ask the candidates to present their

thoughts to the committee. This provides the opportunity for the committee to get to know the candidates through a different lens, understand what they have in mind and begin building the relationship between the board and the future CEO. (I personally like asking the The decision of candidates to use a memo to put their thoughts together.) whether to have It is helpful to not have the the exiting CEO exiting CEO involved at this stage to avoid any self-concontinue playing a sciousness on the part of the role should be made candidates. Then, the committee can by the new CEO. formulate its recommendation to the full board for approval. Depending on the familiarity of the full board with the preferred candidate and other circumstances, the board may have the candidate meet with the board at this stage to answer any remaining questions.

Hubert Joly is the former chairman and CEO of Best Buy and author of The Heart of Business: Leadership Principles for the Next Era of Capitalism.

STEP 3: SUCCESSFULLY IMPLEMENT THE TRANSITION

At this stage, the board has a preferred candidate, but the work is far from over. Three key tasks remain:

8. Effectively manage the communication of the decision to the candidates and ensure the retention of key players.

Communicating and finalizing details with the selected candidate is typically easy. Effectively communicating with the other candidate(s) does not always get the same attention. There is also the generally accepted view that candidates who have been passed over will or should leave. I have a different perspective, as they are typically individuals with extraordinary talent and can contribute to the future. Also, it’s not always obvious that they actually want the CEO job or that they are ready to be a CEO at this stage. Paying special attention to this is therefore not only human but also smart. Communication can best be handled by a combination of the future CEO, who can talk about the future, and select board members and the exiting CEO, who can share their wisdom and support.

9. Craft an announcement strategy

tailored to the situation. Each CEO succession is unique, and the communication strategy should be as well, which means tailoring it to the unique circumstances. In the case of my transition to Corie Barry, we chose to emphasize a message of continuity to minimize potential disruptions, internally and externally. And we carefully managed the internal communication through the appropriate series of internal events and demonstrations of mutual support. This was a very different positioning compared to the communication that took place when I became CEO of the company back in 2012, when the announcement emphasized my turnaround expertise.

10. Design successful transition/

onboarding for the new CEO. The specifics here are largely dependent on whether the new CEO is coming from the outside or from within. You might ask, what role, if any, should the exiting CEO have, and for how long? First, the decision of whether to have the exiting CEO continue playing a role should be made by the new CEO with input from the board. The exiting CEO should serve at the pleasure of the new one. Second, if the exiting CEO becomes executive chair, his or her role has to be clearly articulated, with a focus on supporting the new CEO. My suggestion—and what I did at Best Buy—is that the exiting CEO/ new executive chair should remain in the background for a limited period of time, i.e., not to exceed 6 to 18 months.

Making sure the company has the right leader may be the most important factor driving the success of a company. The success of my successor, Corie Barry, at the helm of Best Buy makes me particularly happy. My hope is that other CEOs and company owners can use these insights on this critically important topic to steer their organizations confidently into the future. CE