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Management Succession planning
There are a number of factors that are driving
companies to take succession more seriously.
Increased competition is one. “It’s simply become
harder for companies to succeed, in virtually every
industry,” says Sadan. “It is imperative that
companies recruit the best people. At the same
time, they can’t afford to lose the best people.”
Another factor is greater engagement at board
level, which Sadan believes is largely due to the
UK’s 2003 Higgs Report on the role and
effectiveness of non-executive directors. Similarly,
more chairmen are taking the issue seriously. “I
think many of the new chairmen coming through
now are much more proactive. They’ve all been
CEOs in the past, or most of these new chairmen
have been, and they understand this is crucial.”
The increasing involvement of stakeholders is a
further factor: investors do not like uncertainty,
and CEO succession is receiving unprecedented
scrutiny. In 2009, the US SEC, for example,
proposed more transparency and shareholder
disclosure about succession risk.
While more companies are looking at succession
more closely, many of those that do engage in
succession planning are unhappy with the quality
of their planning. Korn/Ferry’s research suggests
that less than 1 in 10 UK business leaders, for
example, rate their own company’s succession
planning practices as ”excellent.” So what
elements constitute best practice here?
1. Start the succession process early
The first element is that succession planning
can’t be started too early. “The succession
process is never-ending,” says Gorbanovskaya.
“The best companies view this as an ongoing,
real-time process. Companies should try and
create a self-renewing succession culture that
develops leaders at all levels.”
Khurana points out that succession is not a
punctuated event. “Succession is a process that
should be part of board-level discussions
throughout the year. Leadership development is
not a decision to be made in weeks, but something
to be made over years,” he says. “In really good
companies, it’s something that boards get involved
in years in advance of the tenure of the CEO.”
2. Focus on strategy, not personalities
Any well-planned succession should start with a
thorough review of the business strategy, says
Gorbanovskaya. Unfortunately, this rarely
happens. Khurana’s research suggests that
boards often start thinking about the people
first: “Too often it ends up being a contest of
personalities,” he says. “Companies should first
think about the company’s strategic direction,
and only then think about the necessary skills
and backgrounds of the leadership team, not
only the CEO, that are going to be needed to
meet those challenges.”
Furthermore, moving away from a focus on
skills – assessing people against the strategy and
the skills that you’re looking for – can unduly
magnify the strengths of outsider candidates,
while discounting weaknesses, argues Khurana.
This helps explain why many companies turn to
external CEOs, which can be risky. A study by AT
Kearney on S&P 500 companies in the US,
between 1988 and 2007, identified 36 highperforming
companies and argued that much of
their success was due to “home grown” talent.
Gorbanovskaya notes that one of the main CEO
succession challenges concerns the reluctance of
current leaders to create a strong pool of
candidates to replace them. To counter this, she
recommends creating a blend of material and
non-material incentives for current leaders to put
succession planning on their agenda. To ensure
this is embedded, it can be formalized within a
management scorecard and linked to a significant
part of an executive’s bonus (in certain cases, up to
30% of the total).
3. Give HR a seat at the table
Somewhat surprisingly, HR is all too often
excluded from the process, and merely treated
as a support function. Khurana notes that the
best companies respect the importance of HR
and invest very deeply in their internal
development process. “If you look at successful
companies HR is seen as key to the company’s
success. They spend a lot of time and attention
on developing people,” he says.
Companies that realize the importance of
talent give HR a major role. “The head of HR is
usually treated as equivalent to functions like
chief financial officer. In these companies, HR is
given a seat at the table in succession
discussions and is integral to the process,” he
says.
4. Define the role of external recruiters
External consultants and recruiters often play an
important role in sourcing a new CEO. But some
worry that companies expect too much from the
executive search firms. Khurana believes that
the roles of the search committee and external
recruiters need to be clearly distinguished. A
good search committee needs people with a
deep understanding of the context and the
functional backgrounds and requirements for
senior positions, and who are cognizant of their
own biases. For example, one bias to overcome is
that of the stereotype CEO, to ensure a broader
variety of candidates is attracted. “There’s a
dangerous ’ideal form’ as to what a CEO should
look like,” says Khurana. “It’s typically a male
who’s over six feet tall and of European descent.
In the global world, those biases will kill you.”
One thing is certain. Given the changing
balance of the global economy, the future
stereotype of a CEO is sure to include an executive
with considerable experience in rapid growth
markets. Being able to demonstrate an
understanding of the diversity between different
cultures and a global mindset will be essential for
tomorrow’s CEOs.