Good governance mandates thorough succession planning, because you never know when you’re going to need a new CEO.
On 8 November 2023, an Optus outage affected more than 10 million customers and 400,000 businesses across Australia. Less than two weeks later, CEO Kelly Bayer Rosmarin had resigned, CFO Michael Venter had stepped in as interim leader, and the company was searching for a permanent replacement.
Since then, four of the top 10 ASX companies have changed their CEOs — Woolworths, Westpac, NAB and, most recently, ANZ. Other significant CEO departures in 2024 included Star Entertainment, Myer, Nine Entertainment, WiseTech Global and The Star Gold Coast. Some of the handovers were well-planned and carefully executed. Others were expedited by unforeseen events or allegations that might pose a threat to the company’s reputation.
“The board should always be planning for an orderly and well-managed CEO succession, but you should also think about what you’d do if your CEO fell under a bus,” says Bruce Cowley FAICD (pictured above), an experienced board member and currently chair of the Queensland Trust for Nature and a director of the Australian Retirement Trust and Sunshine Coast Hospital and Health Service. “It’s by no means uncommon to lose a CEO unexpectedly, which is one reason the board should always be thinking about succession, not just when your CEO is nearing the end of their term. The board should also monitor the skills and experience the company needs from its CEO, as these are likely to change as the company evolves.”
Should you look inside or outside the organisation?
Andrew Fraser GAICD is chair of the Australian Retirement Trust (ART), one of Australia’s largest superannuation funds, and also a director of Bank of Queensland, BESIX Watpac and the Brisbane Broncos. He believes appointing the right CEO is the board’s most important job — and board members could be considered negligent if they fail to invest in leadership capability.
“Sometimes a compelling internal candidate will be the right choice, sometimes an external candidate, but boards need to invest without a view that either is predetermined,” he says. “Great leaders empower future leaders, so the best CEOs will also want to see their top talent grow as possible candidates for future succession.”
Cowley points out that it is much more common for Australian CEOs to be appointed from within the company than as external hires. “The main advantage of an internal appointment is that the appointee knows the organisation well,” he says. “This can work well when the board wants to maintain the existing strategy and take a ‘steady as you go’ approach. External appointments are more common when the board wants to refresh the strategy or change the culture — or if the company is underperforming.”
When ART’s former CEO Bernard Reilly announced that he intended to spend more time with his family, there was time for the succession to be well-planned.
“We had strong internal candidates, but we also had the opportunity to look for someone from further afield who might bring a fresh perspective to what, in many ways, has been a brand-new company since QSuper and Sunsuper merged to form ART in February 2022,” says Fraser. “David (Anderson MAICD) has a wealth of international experience and a global perspective. He’s an Australian who worked here, then spent the better part of the past decade in London and New York. We found that to be a potent combination.”
NBN chair Kate McKenzie MAICD considered an internal promotion when CEO Stephen Rue FAICD accepted the CEO role at Optus. “In an ideal world, you would have at least one, preferably two, competitive internal candidates,” says McKenzie. “We were in that position, but given ours is such a large role, we also thought it important to test the local and international markets. We work continuously on succession planning so, when Stephen resigned, we were well-placed to get the recruitment process underway quickly.”
While larger organisations may be able to groom one or more candidates for succession, smaller bodies rarely have the necessary resources. “In the not-for-profits and other smaller organisations I’m involved with, my preference is they try to have at least one person with some seniority who could step into the role if the CEO were to depart suddenly,” says Cowley. “They may not turn out to be CEO material, but they can at least keep things ticking over while the board embarks on a more extensive search.”
McKenzie is happy with the way NBN’s succession planning and recruitment played out, with former Vocus CEO Ellie Sweeney assuming the role in December 2024. “It really helped that we had the support of an excellent recruitment firm with access to a wide range of talent,” she says. “They did a great job of managing the process and were actively involved in filtering out candidates. Having a professional as a trusted partner is very important, particularly for larger companies.”
ART also used the services of a globally recognised executive search organisation. “They provided us with a list of quality internal, onshore and offshore candidates,” says Fraser. “We had agreed a succession timing with Bernard, which enabled us to work through the process in a thorough, measured and thoughtful way. However, it’s important to remember that the leadership dynamic will change as soon as you announce a change in leadership, so there needs to be a balance between taking time to find the ideal person and giving stakeholders the confidence and clarity that comes with a decision.”
The process of recruitment
Guy Farrow is a partner in Heidrick & Struggles’ Sydney and Melbourne offices and the regional managing partner of the CEO & Board of Directors practice for Asia Pacific and the Middle East. He begins the recruitment process by gaining an understanding of a company’s strategic outlook, the associated challenges and opportunities, and the culture of the company in terms where it stands and where the board would like it to be.
“We translate all of this information into a profile of the ideal CEO,” he says. “We can then use this to set research parameters and measure internal candidates against external candidates.”
He stresses that succession planning should be continuous rather than an event-driven process. “Good governance means constantly monitoring the development and potential of your internal candidates while simultaneously keeping a finger on the pulse of the external candidate market,” he says. “Periodic mapping studies can help the board to keep track of people who might be of interest in the future. For example, when another company appoints a new CEO, it’s worth making a note of the internal candidates who missed out and who might be a strong fit for succession for your own company.”
The board should also consider how the company itself is evolving. “In 2013, there were fewer than 100,000 homes and businesses connected to our network,” says McKenzie. “Now we have 8.6 million. By December 2025, 90 per cent of homes should have access to high-speed fibre. At the same time, downloads have increased from 65 gigabits per month to 460 gigabits per month. COVID really transformed the environment and, under Stephen’s leadership, NBN did a fantastic job of meeting a massive increase in data traffic.
“In barely a decade, the network has evolved dramatically to become the critical piece of national infrastructure it is today. So, when we were looking for a new CEO, we had to make sure we found someone capable of maintaining the strength of the network who also had the skills to take us into a new phase. We were delighted when Ellie agreed to join us.”
While growth will continue until the whole country has access to high-speed broadband, Sweeney’s role will be more customer-centric.
“Ten years ago, when we were working to complete a big project, the main requirements of our CEO were to deliver it on time and on budget,” says McKenzie. “Now we’ve reached a stage where we can focus more on our relationships with customers. Ellie will also be monitoring changes in technology, such as artificial intelligence, and the impact they could have on customers and our business.”
Maintaining stability
Once a new CEO has been appointed, a smooth transition will help to maintain stability and keep disruption to a minimum.
“It tends to be much easier when the CEO has been promoted from within the organisation, because they understand the business and, at least in the initial stages, are unlikely to want to change things too much,” says Cowley. “When a board decides on an internal appointment they probably aren’t looking for huge changes in strategy and direction.”
When the appointment is external, the chair plays an especially important role. “The transition should be structured, with the chair ensuring the board and senior leadership team are available throughout the onboarding process,” says Fraser. “In particular, the chair should start building up a relationship of trust, candour and support by talking openly and honestly about issues they’ll confront together. In other words, the transition period is a time to start as you mean to go on.”
When it’s time to go
Veteran director Bruce Cowley FAICD, chair of the Queensland Trust for Nature, discusses when — and how — the board should tap the CEO on the shoulder and manage his or her succession process.
While there is a great deal of corporate governance literature on the important roles boards have in selecting and appointing the right CEO, there is far less about when and how boards should require CEOs to step down.
This is not really surprising, given the broader trend globally for CEOs to be held to higher standards of corporate responsibility, transparency and ethics, particularly as consumers, investors and the public become more focused on sustainability and responsible business practices.
Where CEOs have breached their employment contracts, engaged in bullying or harassment, or caused a scandal through their own behaviours, the situation is usually relatively clear.
In contrast, the situation may well be much less clear where the company’s reputation is being damaged by adverse publicity about a corporate issue and the media — and sometimes shareholders, as well — are looking for someone to take responsibility, irrespective of their degree of culpability, and for a senior head to fall.
Sometimes, boards have to make the tough decision to let the CEO go in the best interests of the company, even though they may personally feel that it is unfair. The potential need to do this provides a reminder that while it is important for chairs and board members to develop a good relationship with the CEO, they should not get too close.
When confronted with these circumstances, boards should remember the fundamentals of good governance and always make decisions in the best interests of the organisation. That is to say, boards need to balance any external pressure to remove the CEO as a sacrificial lamb in order to restore the reputation of the organisation against its longer-term needs and interests.
The increasing frequency of CEO departures reminds us vacancies in the role of CEO can arise quite unexpectedly, so succession planning should be something boards give consideration to at all times, not just as CEOs near the end of their terms. Further, the skill and experience an organisation needs in its CEO will also change over time, so boards should assess at regular intervals whether the current CEO’s skills and experience remain what is needed.
While larger organisations generally have the ability to groom one or more succession candidates, many don’t. This is perhaps because of their satisfaction with the current CEO and not feeling the need to look ahead. Sometimes, it is because the current CEO is reluctant to appoint a strong succession candidate to a senior role because of concerns about creating a potential rival for their position.
It is important when boards are looking to recruit someone into a management role as a potential successor CEO candidate that they undertake all the usual due diligence into the candidate’s background they would if recruiting a CEO. Otherwise, there will be a risk of unexpected issues being uncovered just as the candidate is about to step up into the CEO role, or worse still, after being appointed.
Unlike large organisations, smaller bodies often don’t have the financial capacity to appoint senior executives who may be potential succession candidates alongside the existing CEO.
One option is to try to recruit at least one other person with experience and maturity into a role in the organisation, who can step up in the event of the sudden departure of the CEO.
Having someone who can take the reins at short notice is preferable to most other options, such as appointing a board member into an executive role or bringing in an external executive to take on the leadership role temporarily while the recruitment process takes place.
This article first appeared under the headline ‘Who’s next?’ in the March 2025 issue of Company Director magazine.
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