OVER THE course of 2011 UK plc has seen numerous examples of chief executives leaving their post. What has been striking is how the departure of a chief executive can affect confidence in the business as a whole.
When the CEO leaves, eyes automatically turn to the question of who the replacement will be, a question that often brings the finance director into the mix, especially in an economic environment where the FD is often seen as natural chief executive material. However, any uncertainty over the strength and future leadership of a company can have a seismic impact on its investors and broader stakeholders, a concern that puts the spotlight on how businesses plan for and manage their CEO succession.
Investors want to see clear leadership, and it is of vital importance for the long-term sustainable growth of a business that it effectively manages its CEO succession planning. However, Korn/Ferry’s research suggests that less than one in 10 business leaders rate their own company’s succession planning practices as ‘excellent’. Many of the businesses we have spoken to feel that they tackle top-level executive succession reactively and episodically rather than as a planned process, despite the potential negative consequences.
However, there is a growing momentum behind the realisation that companies have to plan for succession as an on-going concern, so much so that Korn/Ferry is launching a dedicated CEO succession service to respond to this need. Boards are now faced with such a complex set of demands that the way succession has previously been managed is entirely insufficient in the modern business world.
CEO succession planning should be embedded in corporate culture, rewarded when done well by the executive team, and embraced as part of corporate strategy. Companies such as P&G, IBM and XEROX are good examples of big international businesses that have taken a proactive approach to CEO succession planning. In the case of P&G, leadership development and succession planning permeate throughout the culture and ethos of the entire company.
So how should a well-planned and efficient succession strategy work? Developing a company-wide succession planning process ensures that the board knows it has a pool of available, “ready” talent on which to call as the need arises. The most effective succession programmes identify the individuals with the skills needed to deliver the business strategy in the medium and long term and provide these individuals with the experiences that they need to develop.
This might involve rotating potential leaders into different business functions to broaden their experience, or sending them on international assignments to provide them a first-hand perspective on a geographical market that the company believes will be a key one in the coming years. As a result, the motivation and engagement of these future leaders increase and they are more likely to stay at the company.
There are occasions where businesses can’t identify the potential they need internally, and in these cases it is appropriate and necessary to look outside to fill any skills gaps. Our experience tells us that the most effective succession strategies not only commit to identifying and developing internal talent in a systemic way, but also benchmark high potential employees against the best executives in the wider market, which is where integrated executive search and talent management services combine to enhance the process.
It is important to build up a picture of what the attributes are that distinguish successful leaders, and this knowledge helps to establish and implement leadership assessment and talent development programmes.
It is vital that once a succession strategy is put into place, it is continuously managed. Creating a succession plan is essential, but it won’t ensure a company’s business achieves continuity and success when it needs to find a new leader unless the plan is executed properly. Economic and market circumstances change, and as such, so does the type of CEO a company needs. Boards shouldn’t necessarily be looking for a new version of the current CEO, however successful he or she is; a board’s picture of their next CEO should be continually evolving with its business strategy.
If this process is managed properly and continuously, larger businesses should always have five to seven potential leaders within it who are able to step up to the top job. These people will have the necessary skills to lead the company and will be tried and tested within the organisation, familiar with its culture and known to its employees and outside stakeholders. Incoming CEOs should already have begun to develop relationships with board members and should have an appropriate amount of time with the outgoing CEO to ensure they are familiar with current priorities and can hit the ground running from day one.
In our view, although some circumstances can dictate the need to look externally, in many cases a board is failing in its duty to investors if it has to look outside its company for a new chief executive.
We believe that boards need to hold their leadership teams accountable for implementing a sound succession plan. Good leadership is a critical element of a company’s long-term sustained success and as such it is the responsibility of the Board, not the HR function, to ensure the process is managed effectively. Building a robust on-going succession process is a key aspect of corporate governance for boards – and one we believe can and should feature ever more prominently on their agenda.
Ben Jones is head of executive search, talent management and leadership consultancy Korn/Ferry’s CFO Practice, EMEA
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