With 10,000 Americans turning 65 every day, and the related wave of “boomer” retirements, companies are facing the challenge of replacing longtime, sometimes founder, CEOs. As executive transitions are one of the top stressors for organizations, colleague and study co-author Robert O. Zdenek and I set out to learn what we could from these transitions and share this information with the field.
With the assistance of the Housing Partnership Network (HPN), a collaborative of 100-plus leading nonprofit affordable housing development organizations, we conducted a survey in the summer of 2022 of recently retired, about to retire, and brand-new CEOs who are HPN members. We received 61 responses. In the last three years, 31% of HPN CEOs have turned over, with another 30% expected to retire in the next five years. The incoming leadership is younger and more diverse, with 71% of the new CEOs people of color.
In contemplating retirement, survey respondents indicated that age was the most common factor in making the decision to leave. Another frequently cited reason was that they had accomplished their goals for the organization and were ready for a new challenge. However, a few CEOS noted that they left because they had issues with their boards or had COVID fatigue. One CEO commented that she left at age 65 because she thought it was important to make room for the next generation. Many retired CEOs reported that they were staying active post-retirement by consulting, teaching, or volunteering.
Unlike for-profit affordable housing companies, where leadership has an ownership stake in the company and their departure may include a substantial payout, nonprofit CEOs typically receive a thank you and a handshake. In recent years, some longtime, nonprofit CEOs are getting exit packages from their boards in acknowledgement of the substantial contribution they made in the growth of the companies. These packages may include extended benefits or bonus pay. In most cases, the exit package was initiated by the departing CEO and not by the board.
Recently retired survey respondents relayed that prior to announcing their departure, they assessed their organization to determine if it was strong enough to endure the transition. Critical elements are a strong board of directors, a strong senior leadership team, and strong financials. If one of these pieces is missing, the odds of a successful transition are reduced. Many CEOs chose to work with consultants to help them shore up their companies before leaving. Some worked for two years or more to ensure they had a strong bench and business model in place.
Most departing CEOs gave their boards and leadership teams at least a year’s notice of their intent to retire. This gave the board adequate time to search for a new leader. The amount of overlap between the departing and incoming leader was usually fairly short. While departing CEOs made themselves available for regular consultation with the new leader, few continued working full time with the organization for more than a few weeks. In cases where the outgoing leader stayed on, it was to work on a discreet project, and not manage the organization. In most transitions, the departing CEO was involved in the search for their replacement to some degree, but the final selection of the new leader was most often the responsibility of the board of directors.
Thus, it is critically important to have a strong board that has a thorough understanding of the condition of the organization and the type of leadership needed at the time of the CEO transition. Organizations may need the new CEO to do a turnaround, shrink the organization, accelerate growth, realign the business model, or sustain growth. Each situation requires a different skill set. Most of the organizations surveyed hired a consultant and/or recruiter to help them manage the search process. Exceptions to this were cases where there was an internal hire.
Survey respondents were split on whether or not the outgoing CEO should leave the new head a fresh, multiyear strategic plan. While it can be helpful for the new CEO to have a clear idea on the goals of the company, a long-term plan can saddle the incoming leaders with an agenda they may want to change. A short-term plan can both provide direction and give the incoming leader the flexibility to set future direction after they know the organization and its people better.
Incoming CEOs stated that strong support from the board and the senior leadership team was most helpful to their successful transition. Many used coaches and mentors to navigate the change. The biggest challenges faced by the new leaders were: the need to tackle organizational change, shifting the culture, and working with the leadership team to adapt to the new leader’s management and communication style. For internal hires, quickly backfilling their prior role was critical to allowing them to focus on their new duties. In a couple of instances, the financial health of the organization was not as strong as represented, reinforcing the importance of candidates thoroughly vetting the organization prior to taking the job.
Looking ahead, the days of the 20-plus-year tenured leader are likely a thing of the past, according to intel from professional recruiters. Incoming leaders are committing for shorter periods, more typically five to 10 years. Boards and leaders need to prepare for more frequent succession by building durable business models and strong upper management teams that can sustain momentum during periods of leadership change. Succession planning needs to become a bigger priority, at all levels of the company, not just the top.
While our study just surveyed nonprofit companies, there are lessons for for-profits, too. All companies need to build a strong team, be thoughtful about the stage and needs of the company, and identify the type of executive needed to successfully lead in the future, and not necessarily duplicate the past.