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 <strong>Ernst</strong> & <strong>Young</strong> 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 <strong>Magazine</strong> Issue 07 <strong>Ernst</strong> & <strong>Young</strong>
Sacha Sadan __ Director of Corporate Governance at Legal & General Investment Management, argues that the past decade has seen substantial improvements in corporate governance, which in turn has pushed corporate boards to take succession issues more seriously. <strong>Ernst</strong> & <strong>Young</strong> Issue 07 T <strong>Magazine</strong> 45
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