CEO removals are often the boardroom equivalent of action movies—high-stakes affairs involving dramatic confrontations. But to be successful, the maneuvers require in-depth succession planning at the board level well in advance. In today’s environment of heightened CEO accountability, those in the boardroom can expect to engineer more and more leadership changes, sometimes gradually over the course of years, but, at other times, virtually overnight. According to Chicago outplacement firm Challenger, Gray & Christmas, CEO departures jumped to 1,322 in 2005, double the turnover rate seen in 2004 and even more than during the post-tech-bubble carnage in 2000.

"It’s almost a planning process that never takes a vacation. If you haven’t thought about who’s standing ready, then you’re in a crisis."

As recently as two decades ago, executive succession was a much different affair. CEOs handpicked their protégés and then secured the board’s stamp of approval. But times have changed, and now proactive directors have responded to increased shareholder scrutiny by pushing CEO transitions and long-term succession planning to the top of the agenda. Strong boards now choose to lead the process at every step, from developing contingency plans in case of an accident to grooming senior management for an eventual transition.

Despite rising turnover, however, few boards are truly content with their succession playbook, according to Roger Kenny, cofounder of Boardroom Consultants, a New York firm that helps companies select directors and plan succession. While many Fortune 500 companies have crafted succession strategies, smaller companies risk being caught by the unexpected. Many directors worry that they perpetually lack sufficient choices for the top post; this indicates that they need to work harder to develop a pipeline of management talent. While conventional wisdom suggests that internal candidates will perform better in the position of CEO than newcomers, contemporary boards recruit nearly as many successors from outside as from inside—a sign that directors are dissatisfied with their options within the company, says John Challenger, founder of Challenger, Gray & Christmas.

Perpetual Motion
Beginning succession planning early can make all the difference between a fluid transfer of power and a public battle for the top seat, whether it is a planned transition or, as in Keane’s situation, an emergency. "It’s almost a planning process that never takes a vacation," says Barbara Hackman Franklin, who sits as a director on the boards of Aetna, biotech company MedImmune and pharmaceutical firm GenVec. "If you haven’t thought about who’s standing ready, then you’re in a crisis. And sometimes thoughtful solutions go out the window in a crisis."

TOP VIEW To prepare for unexpected events and emergency situations, corporate directors must plan years in advance for CEO transitions. Experts advise boards to conduct succession planning by continually cultivating internal candidates, as well as establishing strategies for outside recruiting. While some transitions are voluntary, many others are not, and require candor and face-saving compromises to avoid the appearance of disarray.

According to Franklin, Aetna offers an excellent case study in advanced transition planning. More than two years before Jack Rowe, the executive credited with the turnaround of the insurance company, stepped down from his CEO position in February 2006, Aetna’s board began holding detailed discussions about succession at executive sessions. The directors closely followed the career of Ron Williams, the candidate who would ultimately succeed Rowe. Although boards often neglect succession planning during a company’s good times, directors should cultivate internal candidates three to five years before a planned transition and develop bench strength for not one, but two layers of management, says Peter Gleason, COO and director of research at the National Association of Corporate Directors in Washington, D.C.

Promoting execs through numerous positions within the company’s ranks remains the textbook method for deepening the CEO candidates’ professional experiences while testing their mettle. After a San Diego software company, Peregrine Systems, was forced into Chapter 11 by an accounting scandal, new CEO John Mutch hired James Zierick, a McKinsey veteran, to serve as second in command. Over the next two years, board members took turns mentoring Zierick, moving the executive through increasingly senior roles in strategy, marketing and field operations. "If I get hit by a bus tomorrow," Mutch says he told the board, "this is the person you put in charge."