Tom Monahan recalls a formative moment. He was walking in a park with his parents, pushing his child in a buggy when he bumped into an employee who said: “Hi Tom.” He realised he didn’t know their name. At the time he was chief executive of the research and advisory firm CEB. He joined in 2005 and it grew rapidly under his tenure.

Once the embarrassment passed, he had a revelation: the company he led had reached a size where it wasn’t personal any more. Monahan, now chief executive of headhunter Heidrick & Struggles, believes learning how to scale a company is a psychological challenge as much as a practical one. The key is an objective approach to hiring at the top level.

Heidrick & Struggles is based in the US, which has a track record of producing more large companies than the UK. However, Monahan believes while the US has the advantage of a large internal market, geography is less important than mindset.

“It’s about scaling talent,” he says, “and having the right set of leaders given where the company is at. This is a common reason that organisations fail to scale to their full potential. It’s a very hard decision to say, ‘this is the team that took me from one to 10, and it’s not the team to take me from 10 to 15′.”

Heidrick & Struggles helped to fill 307 CEO positions worldwide last year, mostly at large organisations, and says it carries out 7,000 searches annually. Monahan uses everything from team-based assessments to simulation exercises, depending on the post and what’s at stake.

“If you are replacing a legendary CEO in a company with a multibillion-market capitalisation,” says Monahan, “you are going to do some intense one-on-one scenarios. But you don’t shake something and realise that this person is going to be good or this person’s not. It’s just more data to back up our research on the person – we’re amassing a fact base.”

Monahan has advice to share about finding the right leaders that he believes is relevant to smaller businesses, too.

1. Succession is not an event

Many companies might see hiring a new CEO or senior exec as something that only happens when someone hands in their notice. But, says Monahan, succession planning must begin on day one and CEOs must be actively involved.

“Our best consultants would say succession is not an event,” says Monahan, “it’s a discipline. When we find a CEO for a company we will say: ‘Congratulations you started your new job today, time to think about the succession.’ Part of your job as a leader is to [think about] if I call in sick tomorrow or if I stay 10 years, who should be taking over.” 

Succession could be the most important strategy decision the company makes. “It’s more powerful than any slide deck, there’s no decision that so completely governs a company’s performance, so trying to separate succession and strategy is a really bad idea,” says Monahan.

Different candidates could take the company in very different directions, so a healthy field of replacements is vital. Heidrick & Struggles, taking a sports analogy, call this “building your bench”.

2. Trust the board

Although the sitting CEO should have a keen interest in succession, he or she is not always the best person to choose the successor, even if they are the founder.

“Good governance would say succession is decidedly the board’s choice, that is what the board exists for,” says Monahan. It’s best understood by considering that the CEO has “a perspective” not “the perspective”.

“I think some of the strongest founders build a board knowing that moment will come,” says Monahan. Increasingly, even family companies form boards with external people because they recognise they need this fresh perspective.

The CEO can demonstrate their interest in succession by ensuring that possible internal candidates are being developed, says Monahan. Who are they? Are they being given new responsibilities? Are they receiving training or being tested?

Personal favouritism needs to be avoided, too. “The CEO should be grooming great people to be great candidates,” says Monahan, “rather than being locked in on so-and-so, who I’ve been grooming forever.”

3. Heroes versus guides

Consider what Monahan calls the “hero versus guide” model. It is not necessarily an all-powerful superhero, the kind of person with a strong personal desire to steer the ship, who is needed to lead a company or division.

Rather, it is someone with a guide persona, who perhaps does not even aspire to be a leader. They need to be coaxed and trained for leadership roles because their preference is to focus on the work itself, which may keep their position lower in the organisation.

4. Founders are not always best

There is often a point in the evolution of a business when the founder realises they need someone else to run the business. This could be because it needs different leadership, skills or expertise, or because the founder wants to focus on a particular aspect of the business that they enjoy.

“On any given day we are working with founders who have come to the conclusion that they are not the right person to take the company forward,” says Monahan. That means it’s worth considering where a company is, where it needs to go next and who is the right person to lead it.

5. Look beyond the usual suspects

Global events such as the collapse of Enron and the 2008 financial crisis elevated the importance of chief financial officers. In the FTSE 100, almost a fifth of CEOs previously worked in finance and CFOs are often the go-to when a company is looking for a new chief executive.

But as the business landscape shifts, other execs with different skills and expertise are rising to the top. For example, chief people and HR officers are increasingly realised as future CEOs, in part because of the growing importance of people and culture.

This is a trend that started in Silicon Valley and has arisen because businesses are so talent hungry. Workforces are increasingly challenging to manage. There are new cultural divisions at play, as laid bare on social media, as well as issues such as hybrid working.