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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.
Credit: Keystone / Ria Novosti / Ruslan Krivobok Kraft Foods Ukraine has been one of the company’s top performing divisions globally. Case study Kraft Foods Ukraine’s succession success Planning ahead The departure of a veteran CEO, along with a management reshuffle, helped prove the resilience of the firm’s in-depth transition planning. Kraft Foods Ukraine (KFU) faced a major succession challenge in 2011, when the company’s veteran Ukrainian-American CEO George Logush left to work for local poultry producer MHP. Logush had played an integral role in the company’s growth and success over the prior 16 years, so this was a hard blow for the company. During his tenure, Kraft’s sales in Ukraine had grown more than 100-fold to some US$500 million in 2011, helping to make the Ukraine one of the US food giant’s 10 priority emerging markets. The succession challenge was exacerbated by the fact that three other KFU senior managers were moving on to other internal roles at the same time, while several changes were also taking place in the company’s board. All this came after a full decade with zero turnover in KFU’s top management. “This was not something we could have expected to happen simultaneously, but when the opportunities arise, and when you have the talent in the pipeline, you have to be able to respond to these opportunities,” says Oksana Semenyuk, the company’s HR Director. In the end, the transition process for the top job went smoothly, which Semenyuk credits to the attention that senior management pays to succession planning in the business, with Taras Lukachuk, a Ukrainian national who had worked for Kraft for more than 10 years, taking the helm. “The whole succession had been preceded by years of preparation, so there were no conflict or arguments,” she says. “Everything was planned ahead, with a deep bench of senior management talent developed over years, and Mr Lukachuk knew several years in advance that he was the preferred successor, so underwent a period of targeted training.” As part of the succession management process, and to provide him with the necessary managerial experience, Lukachuk had been appointed several years earlier as the General Manager of the subdivision in charge of all 11 markets under KFU’s control. He also worked intensively with a management coach to prepare for the role. Today, he represents the first of a new generation of local managers playing a senior role in running the multinational’s local operations in the Ukraine. One of the direct benefits of the firm’s longrunning career development program is its ability to help with talent retention. This is a key focus within KFU. “Being able to offer long-term career development, particularly with an international dimension, undoubtedly helps with our management retention,” says Semenyuk. “KFU has about 3% employee turnover compared with a figure of five or six times that for the Ukrainian economy as whole.” This is helped by the ability of local business units to develop customized employee development programs and tools, including programs to help address work-life balance issues of employees. Succession is seen as a key part of this integrated talent management process, and is directly linked to performance management, leadership development, reward and recognition. “Talent management is about getting the right people, with the right skills, into the right jobs,” says Semenyuk. “It starts with the definition of the goal and strategy of the business. We have our main financial target, brand strategies and the overall strategies. We need to translate all these business objectives into people management strategies to help the organization to achieve its overall objective. The foundation of KFU’s success is our people strategies.” HR plays a major role in this too, along with senior management, as part of a program that works on developing successors for all key positions in the company. “All employees have their own three- to five-year career path development plan, divided into stages with specific goals. And it is essential to meet these goals if managers wish to progress in the company,” says Semenyuk. Indeed, KFU’s track record on management development has been excellent. Over the previous decade, it has developed a number of top managers for Kraft’s headquarters and other regional branches of the company, including vice presidents in Central and Eastern Europe, directors who used to work in South Africa and middle managers who worked in assignments in their worldwide head offices in Chicago, USA. Ernst & Young Issue 07 T Magazine 47
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