Building a Contingency Plan for an Unexpected CEO Departure

Nonprofit organizations face many risks that can damage an organization’s hard-earned reputation, deplete financial assets, and generally cause operational mayhem. One often-ignored risk is the possibility of an unexpected departure of the “chief staff” position (CEO, Executive Director, etc.). Organizations that have risk mitigation procedures and contingency plans in place will fare better than organizations that are caught off guard.

The Importance of Contingency Plans

In a perfect world, the CEO would serve for many years, performing at a high level while providing the organization with a long-term succession plan for departure or retirement. This scenario rarely plays out because there are many potential disruptors, most of which are out of the organization’s control. These changes, such as illness, accidents, relocation, changing economic conditions, loss of funding, and competing job offers, can arise quickly, leaving little time for a smooth transition. And even if we could control each of these elements, it is hard to predict their precise timing.

Developing a set of contingency plans and related action steps for an unexpected CEO departure is a best practice that will result in many benefits to the organization. While organizations are generally intimidated by the prospect of facing these uncertainties, it is important to start the process of assembling basic risk mitigation procedures and documenting them in a formal written contingency plan. As I recently commented in an article for ASAE's Associations Now: “Less is better than more, and less is better than nothing … Start out with a very simple plan that you can slowly build later on just to have something.”

Best to build the contingency plan focused around three core priorities: (1) strengthening enterprise risk management; (2) ensuring seamless operational continuity;  and (3) protecting the reputation of the organization.

1. Strengthening Risk Management

Having strong enterprise risk management (ERM) practices requires nonprofits to be alert to new risks as well as existing risk exposures that might have gone unnoticed in the past. Planning for an unexpected CEO departure is one of those potential risk exposures that might not have been addressed in past ERM planning.

The CEO position is always considered a position of critical need, with management duties and fiduciary responsibilities that cannot or should not be provided by other staff or Board leadership positions.

When a CEO position is suddenly vacant, the organization needs to be able to answer the question “what happens next?” Larger nonprofit organizations, companies, and governmental agencies are typically prepared for this question because the consequences of not having a contingency plan can be disastrous. The risks from operational disruptions and delays in strategic decision-making can impair organizational continuity and tarnish public trust, causing damage to the organization’s reputation that can take years to repair.

The main short-term risks involve disruptions to operational practices, internal accounting control systems (IACS), and other compliance processes. For example, an organization that is not prepared for an unexpected CEO departure will be left to scramble to develop workarounds for approvals required for contracts, payroll and compensation adjustments, expenditure authorizations under the budget, etc.

Longer-term risks include delays to strategic plan implementation, governance meetings, and messaging to constituents, funders, and the public.

2. Ensuring Continuity

Continuity can be disrupted quickly if key approval processes and managerial decision making are temporarily short-circuited by an unexpected CEO departure.

A contingency plan for temporarily assigning operational CEO responsibilities is essential to keep normal processes moving with minimal speed bumps. These contingency plans need to be documented and ready to implement to avoid delays to normal business operations.

In addition to the short-term assignment of CEO responsibilities, it is best to have a separate set of contingency plans for longer-term governance and strategic mission decisions. These longer-term contingency plans should be divided into two categories:

• Long-term plans that are well underway and need to move forward without delay; and

• New long-term strategic plans that are still in the developmental stage that would benefit from a pause pending selection of a new CEO.

3. Protecting the Organization’s Reputation

Reputation is an important factor because if donors, constituents, funders, and the public lose confidence in an organization, it can take a long time to recover and win back their trust. Organizations often take a reputational hit because they did not consider perception, timely messaging, and transparency.

Perception is first because it is the most ignored factor. When the word gets out that a CEO has departed, senior management tends to go into protection mode, looking internally first. However, it is equally important to consider how people outside senior management will perceive the consequences of a CEO departure.

Be prepared to issue statements early and without delay, even if all information is not yet available. Timely messaging will help to keep trust high by showing the organization is in good hands with procedures in place to deliver services, keep programs operational, and meet mission goals.

And always use messaging that is clear and forthright, demonstrating that the organization honors transparency.

Building a Contingency Plan

A basic contingency plan should be centered around providing a temporary bridge to keep operations and communications flowing smoothly. Treat the contingency plan as a starting point to list the roles and responsibilities that would need to be delegated to keep day-to-day operations running with as little disruption as possible.

Start with a list of action steps and divide the assignment of CEO responsibilities into three categories as described below. From there, add a few key components to each category. Don’t worry if the list is small at first. Revisit the list once a year as part of IACS and ERM assessment process and build out the contingency plan gradually and purposefully over time. The list can and should be updated when an actual “emergency” occurs, adding functions not on the original list and pivoting to match the actual parameters at the time of departure.

An initial list of roles and responsibilities to be delegated could appear as follows:

• CEO Management Responsibilities

  • Operational management roles

    • Programs and activities (list specific management responsibilities)

    • General and administration

  • Labor allocations, performance assessments, and staff development

  • Interactions with funders, donors, members, and constituents

  • Public communications and outreach (newsletters, periodicals, websites, etc.)

• CEO Approvals and Authorizations

  • Financial

    • Bank transfers

    • Payroll authorizations

    • Bill payments

    • Budget approvals

    • Contracts, leases, tax filings, licenses, etc.

    • Audit

  • HR and payroll

    • Compensation

    • Benefits management

    • Promotions, hiring, terminations, disputes, work environment changes, etc.

• CEO Governance Interactions with the Board

  • Officer communications

  • Board communications

  • Board meetings

A good contingency plan will recognize what elements can be replaced on a temporary basis and what elements need to be deferred until a new CEO is onboarded. After you’ve listed the CEO roles and responsibilities to be delegated, separately flag key elements that need to be deferred until the new CEO is onboard. Most tasks will be delegated and carried out immediately, with only a few elements deferred for later implementation (such as strategic plan changes). These deferred elements should typically be addressed with the separate contingency plan for longer-term governance and strategic mission decisions, as discussed above.

Planning Tip – A contingency plan for an unexpected CEO or Executive Director departure should identify dates to assess the implementation of the plan to make sure it meets the organization’s needs and allows for adjustments to changing conditions. A good approach is to assess the plan one month, three months, and six months after the CEO’s departure. The one-month mark is to assess whether procedures, authorizations, and Board interactions are sufficiently working. The three-month mark is to review the status of the new CEO hiring process and, if necessary, weigh the pros and cons of taking more time to find the next CEO vs. finding and onboarding a new CEO quickly. The six-month mark is to make adjustments to the plan for future use.

It can be intimidating to look in the mirror and ask the question “are we prepared for an unexpected CEO departure?” Answering the question will not only help your organization to be better prepared but will also add valuable insights to improve the quality and performance of the current CEO’s tenure and enhance retention.

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