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Management Succession planning
Who’s next?
An effective CEO succession planning strategy is crucial
to the long-term success of any company. Yet all too often this is something
that corporate boards fail to plan for effectively.
35%
Proportion of global companies
that have a succession plan in
place and are ready to deal
with a CEO's departure,
according to Korn/Ferry.
• By Fergal Byrne
In an increasingly competitive business
environment, the role of the chief executive is
more demanding than ever. As a result, the
average length of CEO tenure is shrinking, while
failure rates are climbing. All this makes effective
succession planning crucial to a company’s
long-term success. For those that don’t, the risks
are high: badly planned succession processes can
become prone to internal politics, with firms
risking the loss of their best talent, and,
increasingly, bad publicity. Bank of America’s long
and circuitous search for a chief executive is just
one example of this, taking two-and-a-half-months
to complete, amidst constant media and industry
speculation.
This global phenomenon can be even more of a
challenge in emerging markets that don’t have
strength in depth at higher executive levels. Yet
despite all this, the overwhelming majority of
companies do not plan for succession. According
to a December 2010 Korn/Ferry survey, only 35%
of global companies have a succession plan in
place and are ready to deal with a CEO’s departure.
In his book The CEO Within, Joseph L. Bower
suggests a figure of about 40%.
Olga Gorbanovskaya, Head of Human Capital at
Ernst & Young Ukraine, believes that firms cannot
underestimate the importance of good planning.
“Having the right people, in the right place, at the
right time, particularly when it comes to the CEO,
is a pre-requisite for long-term resilience and
success,” she says. “This is especially true as
current demographic trends suggest that a
shortage of the appropriate talent is becoming a
major issue for businesses."
Companies with a well-planned, fair and
objective succession process not only have better
chances of securing the best leaders, but also find
it easier to attract and retain key talent. A sideline
benefit is less internal politics, with a tighter focus
on achieving the organization’s goals.
Credit: Muir Vidler
Given such benefits, why has succession been
poorly dealt with for so long? One reason is that
the outgoing CEO often manages the process. And
as Sacha Sadan, Director of Corporate Governance
at Legal & General Investment Management (LGIM)
notes, chief executives often don’t want to hand
over power. “Historically, I think CEOs overstaying
their welcome has been a problem in the UK,” he
says. “When CEOs stay on too long, they get tend
to get stale, or overconfident, or too dominant.
And the company ends up losing key people, as
talented employees give up trying to be the CEO.”
Rakesh Khurana, Marvin Bower Professor of
Leadership Development at Harvard Business
School, and author of Searching for a Corporate
Savior: The Irrational Quest for Charismatic CEOs,
believes that the real legacy of a CEO should not
only be measured by their own performance, but
the performance of their successor. “In many ways,
I think that’s ultimately the real judge of the quality
of the CEO,” he says.
More succession attention
In the UK, Sadan has noticed a substantial
improvement over the past decade in the
professionalism of approach to succession, with
a positive impact from better stewardship and
corporate governance codes in particular. “It is
much more professional now than it used to be,”
he says. “It’s not perfect, but I see much more
evidence that CEOs are thinking about their
support staff, thinking about who is going to get
the job, and good CEOs are moving their
lieutenants around the business to try and get
them the skills that may be needed next.”
Gorbanovskaya also notes that succession is an
increasing focus of many companies, not least to
support talent retention. “Our research suggests
that development and retention is the number one
issue on the agenda of HR managers at the
moment, especially bearing in mind the overall
increase in personnel mobility, which we have
noticed during 2010–11.”
44 T Magazine Issue 07 Ernst & Young