As the industry faces ever-changing regulatory pressures and other challenges, a robust CEO succession strategy is vital, writes Louis Besland, Partner with Heidrick & Struggles.
In the chemicals industry, new regulatory requirements aimed at benefiting the environment and public health are precipitating a shift in the business landscape. More broadly, the pressure is strong on two fronts: customers require sustainable materials and solutions, and regulators require reductions in emissions across the value chains.
Combined with traditional cost competitiveness, safety, and cyclicality, leading in this sector is more challenging than ever. Additionally, the leadership pipeline is already depleted because of low rates of recruitment stretching back to the 1980s. Based on research within the chemicals sector and other industries I have identified three key strategies to strengthen CEO succession.
1. Maintain a diverse pipeline
The cornerstone of an effective succession strategy is the board’s ability to maintain a strong and diverse talent bench. This requires a good understanding of high-potential talent at least three levels below CEO. Boards should also recognize that the more diverse in terms of gender, race, ethnicity, and socioeconomic background that talent pool is, the stronger, and larger, it will be.
There is ample room for more diversity in the chemicals sector: currently, CEOs are less diverse than their peers across other sectors. Retaining diverse leaders requires ensuring all top talent have access to the right opportunities to develop the skill sets and competencies needed to be a potential CEO. The main roles leading to the CEO position remain head of division, COO, and CFO. That said, the chemicals sector must double down: between January 2021 and June 2023, only one out of 52 CEO appointments was a woman. Furthermore, women less often have Production & Logistics experience across sectors.
On the upside, chemical companies retain potential CEO talent well. The average duration of current CEO appointments is 21 years, well above the 13.5-year average in other sectors. The downside to this is that the path to the CEO role usually takes longer, a deterrent for young, ambitious talent looking to grow within their organisations.
2. Leverage external hires to gain multisector and multi-functional experience
Like many other specialised industries, the chemicals sector shows a clear preference for appointing CEOs internally. Often, they are faced with two choices: fast-track candidates who will need to stretch their capabilities or hire externally. Such a shift would be significant for the industry, because 61% of current CEOs were hired internally.
There is no one-size-fits-all solution, but boards may decide that fresh thinking outweighs the typical advantages of an internal promotion, such as a smooth, stable transition. For example, at a time where the industry is experiencing fundamental strategic shifts toward more sustainable models, companies can benefit from bringing in an experienced CEO from a sector rich with sustainability, innovation, and strategic growth, such as renewable energy.
Alternatively, boards could seek talent from sectors that their companies serve. If a chemical company is part of the pharma or food value chain, bringing in a leader from those sectors would augment their understanding of their customers and their end markets. Currently, CEOs in chemicals companies trail other industries in cross-sector experience (only 22% have it, compared to 37% in other sectors), and cross-border experience (23%, compared to 36%).
3. Do not duplicate the incumbent profile
Boards instinctively seek leaders with the same profile as the incumbent CEO. Current chemicals CEOs are on average the oldest at appointment across sectors, at 53, compared to 51 elsewhere.
However, in the context of today’s rapid changes and the need for a fundamentally different strategic approach, it is important that boards assess carefully what skills and capabilities a new CEO needs currently as well as in the future:
Agility: Chemicals companies must adapt to constant change, from scarcity of raw material and disruptive supply chains to regulatory demands. The research has found that agility encompasses a set of underlying traits that allow leaders to adapt to a constantly evolving environment: foresight, learning, adaptability, and resilience.
Sustainability: Having long shaped business and operational models worldwide, companies are now expected to live up to their sustainability promises to maintain their very operating license. The next chemical CEOs must possess a true passion for sustainable growth. A successful chemicals CEO will be able to weigh the increasing pressures from multiple groups of stakeholders by doing good while doing great.
Finally, boards must level the field. Assessments, case studies and simulations can unveil how each candidate would make decisions and behave in a variety of scenarios. Such activities also give the board a clear picture of candidates considered to be step-up talent: not ready for the role at the time of assessment, but with clear potential in the future.
At a time of exponential change for the industry that encompasses a generational handover, a transition towards net zero business, and geopolitical events that are reshaping supply chains, chemicals company boards have the opportunity to fundamentally redesign their approach to CEO succession.
Louis Besland is a partner in Heidrick & Struggles’ London office and a member of the Industrial and CEO & Board of Directors practices, working with clients across multiple geographies. He leads the firm’s work in the chemicals sector globally.
