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The unplanned departure of its chief executive officer can catch a company off guard and result in the loss of stakeholder confidence, especially when a CEO is forced out.1 That’s why more boards are beginning to discuss succession planning as soon as a new CEO starts on the job.
Succession planning also is critical for other executive roles. With 4 million baby boomers retiring each year,2 and many members of the younger generations having different priorities than striving for a corner office, a talent gap is growing at the executive level. The Global Workforce Leadership Survey found that 30% of human resource professionals struggle to find qualified candidates for executive positions, and 59% believe that succession planning is more challenging today.3
Companies that do succession planning right tend to follow several best practices. These include:
Start early — Deborah Rubin, a senior partner at the leadership development firm RHR International, notes that boards often don’t think about CEO succession planning until a year or two before the incumbent is due to leave.4 However, a study conducted by global consulting firm Strategy& and PWC found 25% of directors agreed that the board should begin identifying successors as soon as a new CEO is named.5
Factor in the politics and culture — Author and business professor Noel Tichy believes that 80% of large U.S. companies fail at CEO succession planning because they don’t adequately focus on the political and cultural issues that can impact a leadership change.6 These factors can hamper the successful transition of a new executive.
Define roles — The board owns the succession planning process, although the CEO may take the lead in finding and presenting a pool of candidates. As the CEO’s exit date approaches, the board should actively manage the transition plan for the new CEO across a full year.7
Create a pipeline for internal talent — A formal process should be established for reviewing talent for the CEO and other critical executive roles, one that cascades through the organization and enables rising stars to emerge. A pipeline for talent brings internal candidates to the attention of the board, CEO, executive team and functional team leaders.
Integrate performance management and development — Performance management systems that provide critical feedback and development opportunities to acquire skills, fill experience gaps and assess leadership readiness are critical to groom the successors. Dan Schawbel of WorkplaceTrends.com advocates updating and personalizing career development programs and leadership training to focus on the innovation and growth that companies need today.8
Consider outside candidates — The Strategy& and PWC study found that global corporate boards chose an outsider CEO in 22% of planned transitions during 2012–2015, with successful financial results. This trend was especially true for industries experiencing disruption, such as telecommunications, utilities, healthcare and energy.9 Outsider candidates can bring uncommon skills and a fresh perspective to company problems and industry issues.
Succession planning supports effective governance and management practices in a company. Once the succession plan is developed, the board should keep it up to date and review it frequently. Preparing in advance for the inevitable will help the company achieve a smoother leadership transition.
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1 “Succession Planning Is Key to Smooth Transitions,” by Joann S. Lublin and Theo Francis, The Wall Street Journal, June 8, 2016. Available at: http://www.wsj.com/articles/succession-planning-is-key-to-smooth-transitions-1465410506
2 Noted in “Looming Leadership Gap: One-Third of Global Companies Struggle to Find Senior Leaders and Only 12 Percent of Employees Aspire to the Corner Office,” press release on the Global Workforce Leadership Survey conducted by Saba and WorkplaceTrends.com, March 31, 2015. Available at: https://www.saba.com/us/press-releases/go/2015/looming-leadership-gap-one-third-of-global-companies-struggle-to-find-senior-leaders-and-only-12-percent-of-employees-aspire-to-the-corner-office-1/
3 “Looming Leadership Gap: One-Third of Global Companies Struggle to Find Senior Leaders and Only 12 Percent of Employees Aspire to the Corner Office,” press release on the Global Workforce Leadership Survey conducted by Saba and WorkplaceTrends.com, March 31, 2015. Available at: https://www.saba.com/us/press-releases/go/2015/looming-leadership-gap-one-third-of-global-companies-struggle-to-find-senior-leaders-and-only-12-percent-of-employees-aspire-to-the-corner-office-1/
4 “Succession Planning Is Key to Smooth Transitions,” by Joann S. Lublin and Theo Francis, The Wall Street Journal, June 8, 2016. Available at: http://www.wsj.com/articles/succession-planning-is-key-to-smooth-transitions-1465410506
5 “2015 CEO Success Study: The Rise of the Outsider CEO,” study conducted by Strategy& and PWC, April 2016. Available at: http://www.strategyand.pwc.com/ceosuccess
6 “Succession Planning Is Key to Smooth Transitions,” by Joann S. Lublin and Theo Francis, The Wall Street Journal, June 8, 2016. Available at: http://www.wsj.com/articles/succession-planning-is-key-to-smooth-transitions-1465410506
7 “A Practical Guide to CEO Succession Planning,” by Clarke Murphy, Russell Reynolds Associates, 2016. Available at: http://www.russellreynolds.com/newsroom/a-practical-guide-to-ceo-succession-planning
8 “Looming Leadership Gap: One-Third of Global Companies Struggle to Find Senior Leaders and Only 12 Percent of Employees Aspire to the Corner Office,” press release on the Global Workforce Leadership Survey conducted by Saba and WorkplaceTrends.com, March 31, 2015. Available at: https://www.saba.com/us/press-releases/go/2015/looming-leadership-gap-one-third-of-global-companies-struggle-to-find-senior-leaders-and-only-12-percent-of-employees-aspire-to-the-corner-office-1/
9 “2015 CEO Success Study: The Rise of the Outsider CEO,” study conducted by Strategy& and PWC, April 2016. Available at: http://www.strategyand.pwc.com/ceosuccess
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