The Path to the Top

A forward-thinking, disciplined chief executive officer (CEO) succession plan can maintain and drive a company’s momentum and provide significant protection against the many risks associated with a change of company leadership. The best-in-class boards of directors have a robust and ongoing succession plan and process in place which involves long time horizons, rigorous assessment and thoughtful individual development plans.

Such comprehensive measures help but do not entirely safeguard from the many pitfalls in getting CEO succession right. One core concern, for example, is that many boards do not fully think through candidates’ experiences and specific competencies in light of the company’s strategy, which needs regular updating as the business evolves. The criteria for a new CEO should focus on both the necessary experiences (skills and past accomplishments) and leadership qualities (inherent traits of leaders) required to implement a company’s long-term strategy.

Having a long-term succession plan is important, but it’s even more critical to have an ongoing succession process in place that allows a board to make quick and informed decisions in the event of a crisis. Therefore, succession planning needs to begin the day after a new CEO starts and should be a recurring topic on the board agenda. 

Leadership Profile

Executive search firm Russell Reynolds Associates analyzed the profile of CEOs from 26 leading engineering and construction companies globally. Its data shows that internally appointed CEOs in this industry most often enter the position from a division head role, which is a training ground for the set of skills desired in a CEO. Another common preceding role is that of chief operating officer. 

The majority (68 percent) of CEO appointments in the analysis were internal successors to the role, meaning that knowledge of the organization and the industry is valued. About a third entered the CEO position from outside the company, and, out of those, a fifth joined their current role from a CEO seat at a different company. The smaller proportion of external CEO appointments reflects the widely held perception that externals pose outsized risks when it comes to company culture and other related factors. 

However, the firm predicts that the changes in the market and the aging population of next-generation leaders within the industry itself will pressure engineering and construction companies to drive the need to look outside the sector to fill specific gaps in their executive team. 

In addition, the analysis shows that more than 80 percent of all the CEOs in the sample have had significant engineering and construction experience, which confirms the often taken-for-granted assumption that comprehensive experience in engineering and/or construction is a prerequisite to success, though it depends on the company’s strategy and position. Almost 60 percent of externally appointed CEOs were hired from outside the industry, most frequently from adjacent industrial sectors.

Becoming a CEO

The most likely path for the CEO role is to pursue a career in general management, including leadership positions early on in projects and functions and later on in geographical and business unit positions. This provides well-rounded skills and experiences for high-performing individuals, and it is in these roles that future CEOs can build upon important competencies such as strategic thinking, commercial leadership, P&L management and organizational development. In recent market conditions, boards have selected a leader to come in and drive major structural changes and redesign of the internal organization in ways that support the strategy. Getting exposure to areas outside project leadership and moving out of one’s comfort zone can help build a diverse background and, therefore, make a more appealing CEO candidate.

The engineering and construction business is driven by projects, and many favor a career path in project leadership. In recent years, construction projects have become extremely large in scale. These assignments entail more than $1 billion in cost to build, are multi-year in duration and are complex to manage, each encompassing its own organization structure. Therefore, young executives can aspire to grow in the project leadership field and excel in that capacity, with the vision of becoming a megaproject leader. This role can be viewed at times as a CEO-like position, as some megaprojects exceed their parent company in market capitalization and require CEO-level skills to manage successfully. However, executives who take this project leadership path may be viewed less favorably for the top job.              

     Although technical engineering excellence is often a basic prerequisite for the CEO role, boards must take a hard look at the company’s strategy and define CEO skills and competencies that will produce a differentiating advantage for the future. Boards must ask what kind of leader can implement the necessary changes in the organization and inspire confidence in the market.

In the engineering and construction industry, there are many challenges to the criteria that traditionally have been applied to select a successor. This means there is an opportunity to ascend to CEO even for those who fall outside the traditional track. 

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