People Practice » Succession planning: Avoiding a car crash in the search for new blood

Good leadership is so crucial to any organisation that losing a top executive at short notice, for whatever reason, may threaten the very existence of the business itself – particularly if the departing person is the founder or, is very long serving. Individuals may decide to resign for a variety of reasons; ill-health, scandal, dissatisfaction, retirement or, to pursue other opportunities.

Where such an announcement is publicly unexpected, or the company itself is caught on the hop, the fall-out can be seriously detrimental to the share price, staff morale and public reputation; witness the sudden departure of Purplebricks CEO and founder Michael Bruce (7 May 2019).  An unplanned exit at the top is likely to result in an unhelpful power vacuum whilst a successor is hastily found. And clearly, this will be less than conducive to business as any successor takes time to find his or her feet and to “bed-in”.

Consequently, all organisations need to be resilient in this regard and proper planning is the key when it comes to succession issues. Being pro-active is always to be preferred to being bounced into reacting to a crisis.  With proper planning, the departure of a director or top executive can be turned into an opportunity. So, what can businesses do to ensure they are not caught out and that an orderly succession of senior personnel takes place when necessary?

The working assumption should be that senior management will move on at some point.  A company’s risk register should reflect this and the board may benefit from “war gaming” a scenario where the company has to respond to a sudden exit.  Ideally a plan would be in place and be ready to activate once it became clear a senior person was going.  This could include having a recruitment agency in place and briefed and pre-designating people internally to assume certain responsibilities on an interim basis.

Hindsight is a wonderful thing, so businesses need to create their own hindsight by being cognizant of when the occupants of crucial roles are most likely to be moving on.  One obvious example is when people might be thinking about retiring.  Although most employees can no longer be forced to retire by their employer, having workplace discussions about an individual’s future aims and where they see themselves in the next few years is entirely legitimate.

Although boards may be cautious or feel uncomfortable initiating such discussions, it is crucial they do so, perhaps as part of a formal appraisal processes and, if handled sensitively, should present minimum legal risk of age discrimination claims.  Ideally, the same questions should be asked of all executives, regardless of age.

The news that Philip Hammond had appointed specialist headhunters Sapphire Partners to begin the search for Mark Carney’s successor as governor of the Bank of England sent the pundits into overdrive last month.  This is however, a potentially good example of succession planning as Mr Carney is not stepping down until the end of January 2020.

This is the first time that the government has engaged an external agency in order to find a new central bank governor and its choice of firm hints at concerns regarding gender diversity at senior levels that will strike a chord with many organisations.  Sapphire Partners is run by five female partners and has been recognised for its work promoting women non-executives.  All of which suggests that the odds on the first female governor of the Bank of England being appointed look a lot shorter than they might have done!

Diverse mindset

A shortage of women in the most senior positions tends to create a significant gender pay. Large employers must report on their gender pay gaps every year and the pressure is on to demonstrate improvements from year to year. In addition, FTSE companies are under pressure to improve the representation of women at board level following the “Women on boards” report by Lord Davies and the Hampton-Alexander Review. However, it’s not just women who need to be better represented.

Sir John Parker published his independent review into improving the ethnic diversity of UK boards back in 2016 and, with ethnicity pay gap reporting set to be introduced it looks certain that a drive towards broader diversity is very much on the political agenda.  A vacancy can be a good opportunity to increase diversity at senior level.  However, employers should not be overly enthusiastic in this regard by, for example, only considering women or appointing someone just because they are of a particular ethnicity.

European law is very clear that this amounts to direct discrimination which remains unlawful, however benign the motives (increasing diversity) for it may be. In a recent employment tribunal case a white, male, heterosexual applicant failed to be appointed to the police, despite passing the admission tests.  He was successful in his claim for discrimination.

While it is natural that a senior executive might want to move on to pursue other opportunities at some point in their career, an employer makes this process a lot easier for itself by ensuring the employment contract contains the right clauses from the start.  For example, does the executive have to give a sensible amount of notice so that the company has breathing space to find a successor?

While the market norm is often three months, a company should always consider whether to require a longer period of notice to be given by a particular individual.  A company may very well want to put a departing executive on garden leave, to isolate them from confidential information while they serve their notice period. Drafting such clauses properly can make the departure process a whole lot easier for the company.

For example, it should be clear that the company can appoint someone else to their role during the time the executive is serving their notice and there should be a specific, contractual obligation placed on them to assist with handing over to their replacement.

One way of introducing more certainty, could be to appoint an executive on a fixed-term contract.  This way everyone is aware of when they are due to move on and, the search for a suitable successor can take place in an open and orderly way.

These days companies can’t rely on the next generation sticking around until the top jobs become vacant. But, having ‘home grown’ employees who can seamlessly step into more senior roles when needed (without the time and resources required to appoint someone from outside) is an attractive solution.

Putting in place the structures to nurture talent and make staff feel valued is likely to be the key to retention over the long-term.  This goes beyond salary and benefits to investing in training and management mentoring schemes to enable knowledge and skills to be passed on.  Letting staff know that they are seen as future leaders can give them the confidence to grow into their careers.

Supporting female employees after they have children with flexible working initiatives may not only help with retention but, could also help to reduce the gender pay gap if they are able to fill more senior roles further down the line.