The CEO Succession Where the Chair Had a Favorite
Anvil Financial's board is selecting a successor to its retiring CEO. The board chair, Gerald, has led the process and has a long relationship with one internal candidate, Rina, the head of retail. Gerald arranged for Rina to present to the board three times while the other two candidates presented once. The external search firm was engaged by Gerald alone, and its mandate letter lists 'cultural fit with current leadership' as the top criterion. The independent directors have grown uneasy: Rina's division missed its risk-adjusted return target two years running, and a 2023 internal audit found control weaknesses in retail lending that Rina's remediation addressed only partially. Gerald has told directors that 'the board needs to move quickly' and has proposed a vote at the next meeting, two weeks away. One director asks whether the process is defensible.
1. Evaluate the process against board duties and identify the specific deficiencies.
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The process has structural deficiencies that go to the board's duty of care and its obligation to act on an informed basis.
Deficiencies:
- Unequal access. Three presentations for Rina versus one each for the others gives one candidate disproportionate exposure and the board disproportionate familiarity. It also signals to the board and to the candidates which way the chair leans, which suppresses challenge.
- Chair-controlled search mandate. Engaging the search firm through Gerald alone, with 'cultural fit with current leadership' as the top criterion, biases the process toward continuity and toward the chair's preferred profile. A board-level committee should own the mandate and the criteria should be set by the independent directors.
- Compressed timeline. Two weeks to vote on a CEO, with a director already uneasy, is not consistent with adequate deliberation. Urgency asserted by the chair is not the same as urgency required by circumstances.
- Known adverse information not addressed. Two years of missed risk-adjusted return targets and partially remediated audit findings in Rina's division are directly relevant to a CEO candidate's suitability. The board has not been told how these were weighed.
- Independence of the decision. Gerald's long relationship with Rina is a conflict of interest that should be disclosed and managed-at minimum, he should not chair the deliberations or control the information flow.
Duty framework: Directors owe care and loyalty. Care requires an informed, deliberate process with adequate information and opportunity for challenge. Loyalty requires that personal relationships and preferences not drive the outcome. A process that fails these tests exposes directors to criticism even if the ultimate choice is sound.
2. Recommend a process the board can defend, and address Gerald's role.
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Process recommendations:
- Form a succession committee of independent directors, chaired by someone other than Gerald, with authority over the search firm, criteria, and timetable.
- Reset the criteria to be board-defined: risk-adjusted performance, control environment, regulatory track record, and leadership-not 'fit with current leadership.' Ask the search firm to re-present its mandate and confirm it takes direction from the committee.
- Give all finalist candidates equal access: same number of sessions, same materials, same questions, and a common scorecard completed by each director before discussion.
- Require a full briefing on Rina's division performance and the audit findings, including what remediation remains open and why. Ask Rina directly; do not rely on the chair's summary.
- Extend the timeline to allow reference checks, external benchmarking, and a second round. Set a realistic date rather than accepting the chair's two-week proposal.
- Document the deliberation and the reasons for the final choice, including how adverse information was weighed.
Gerald's role: His relationship with Rina should be disclosed to the board and recorded. He should step out of chairing the succession deliberations and should not control the search firm or the information flow to directors. He may remain a director and express a view, but the decision should be led by independent directors. If he resists, the independent directors should document the concern and proceed-deference to a chair's urgency is not a defense to a flawed process.