"It's not the quality of leadership that matters so much as the continuity of quality leadership that preserves the core values and purpose of a company."
- Jim Collins, business guru
Successful companies' annual talent reviews should include succession planning for two very good reasons: 1) to make sure there is a pipeline of suitable people ready to step into critical roles when the time comes - whether it's now or in the longer term, and 2) to retain those suitable people once they've been identified.
The idea, of course, is to focus on the development needs of those suitable people to get them match fit (so to speak) when it's time for them to take over.
Because if they're not match fit, it can spell disaster for the company: a Harvard Business Review analysis estimated that one bad CEO succession wiped a trillion dollars off an S&P 500 company - in a single year.
But good succession planning for uber-critical roles like that of CEO, the argument goes, can take years to perfect. I've worked with quite a few FTSE companies with just one or two candidates in line for the top slot, and that can cause problems for a variety of reasons; those candidates generally know they are in line for the top slot and there is a risk of the emergence of the young ‘emperor’ or ‘empress’, plus research shows us that learning tends to slow down or stop in those ‘chosen ones’.
Then again, a Chartered Governance Institute report tells us that only 54% of FTSE 350 companies actually have a Succession Plan in writing.
And one FTSE 20 company (which shall remain nameless) identified and placed an internal candidate into their top slot - the problem being that he'd been with the company since graduating. That meant a complete lack of experience in any other business type and so he was rumoured to have some very big gaps in his skill set. Those gaps would have been properly plugged if he'd been sent to do a few stints in other, more diverse partner companies.
That same Harvard Business Review analysis discussed above also estimated that investor returns can be 25% higher with appropriate succession planning, so it's definitely a worthwhile investment.
Top tips for successful Succession Plans:
· Start planning at least three years ahead.
· If you are the CEO - listen to other members of the management team when it comes to the skill sets required. And if you are the CPO - be brave enough to challenge the views of the CEO.
· Ignore any unconscious bias you may have regarding candidates' suitability.
· Stretch all the candidates by identifying both their weak and blind spots and then giving them challenging role experiences to plug those skill set gaps.
· Think outside the box - or at least, think outside the company's organisational pyramid, where the higher up one goes, the fewer diverse roles are available. Remedy that by developing relationships and arranging cross-company candidate transfers for candidates with external companies you work closely with.
· Be ruthless when assessing candidates' character and behavioural traits, rather than just their technical skills. It's well-known that at a certain level technical know-how stops and commercial/leadership skills start to kick in. It's only when candidates are actually in the field that it's possible to tell whether they're ego-free team players or political power players. Too many companies promote the latter type of player, and in the long term that rarely ends well.
· Recruit within the company's top slot, obviously, but mix that with some external recruitment. Senior-level candidates a couple of steps down from other companies' management teams can provide fresh blood and new ideas without so much risk if they don't fit in well with your corporate culture.
· If you do need to recruit externally for a top role, never cut corners when it comes to due diligence to see how candidates have proved themselves in the past. Remember some people are great interviewee’s.
· Use the 'right' selection tools to ascertain cultural fit, rather than relying on personal judgement or unconscious bias.
· Never plan succession behind closed doors. If planning is open and promoted as business critical your teams will see the opportunities that come with it, and enjoy the motivation of knowing their company is encouraging people to look ahead.
· Finally, be prepared for the unexpected - you never know what's just around the corner!
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