Succession Planning: For Impact, Not Box-Checking
If your CEO suddenly exits, do you know who will take his or her place? What if your top executives are unexpectedly persuaded to leave and go to another firm? Do you have the next generation of leaders ready?
If not, you may end up hiring too quickly, promoting under-qualified leaders, or moving leaders prematurely.
The most effective way to reduce the impact of depleted leadership is through a strong succession planning program that identifies and fosters the next generation of leaders through mentoring, training, coaching, and stretch assignments, so they are ready to take the helm when the time comes.
Research supports sound succession planning. Studies have concluded that CEOs and senior leaders promoted internally outperform outside hires. Yet many organizations struggle to take their succession planning programs beyond a stagnant list of names plotted for a few top spots. As companies consider, develop, or evaluate their succession planning process, they should consider these fundamental issues:
Examine hiring from within versus bringing in from the outside. Developing leaders internally takes time and effort, but these homegrown candidates are more likely to be successful than external candidates. Research shows external hires are 60 percent more likely to be laid off or fired, and 20 percent are more likely than internal hires to leave a job. These outside hires also get paid more but get lower marks in performance reviews during their first two years on the job.
However, internal hires are’t always an option. Thirty-five percent of firms anticipate they will need to recruit externally for C-level roles in the next year. Internal candidates also are not guaranteed to be the best choice. If a company wants to move in a dramatically different direction or its current leaders leave before the next generation is ready, companies need to be open to bringing in someone from the outside. Additionally, it can be good to bring in fresh perspective, ideas, and a different lens from “this is how we do it here.”
Invest in high potentials without overlooking everyone else. Some companies focus their succession planning on high potentials; others consider the larger employee population (50 percent of companies today focus on the executive level). The value of specifically developing high potentials is channeling resources and coaching toward those with the greatest possibility of succeeding. However, you might risk overlooking great talent and alienating or frustrating the rest of the employees, which can affect morale, performance, and retention (only 10 percent of companies today focus on all critical positions at all levels). If you focus on high potentials, it’s critical that all employees are provided development opportunities and visibility, if and when earned.
Develop the BASKET. Create a specific profile for every job: the Behavior, Attitude, Skills, Knowledge, Experience, and Talent—or BASKET—necessary to succeed in the role. This will help employees understand what’s expected of them in their current role and what it will take to be ready to move forward. Be able to assess the state of readiness for people to get to the next levels and their potential levels—can they move up one, two, or three levels? What’s the timeframe? Are they at the level they should be?
Factor in where you are going. Be sure BASKET assessments consider the skills necessary to fulfill future roles—not just present ones. For example, if the company plans to expand globally, the next generation of leaders should be comfortable working abroad; or if growth plans involve rapid acquisitions, someone with finance skills and change management experience may be the best choice for leadership positions.
Assess the gaps. As part of the talent assessment process, assess everyone in the organization with an eye toward who is ready to take on key leadership roles today, in 36 months, and in 72 months. Use the BASKET assessments to do a gap analysis with employees to help them see what they need to do to be ready for the next level and how long that should take.
Identify roadblocks. Once you’ve completed the assessments, look for any bottlenecks in the development process that could prevent candidates from moving forward. This may include executives who block the way for the next generation or glaring gaps in readiness for critical roles. Ideally, you will have two to three candidates for every leadership and critical position in varying stages of readiness.
Succession equates career management. As part of the assessment, discuss with your employees their career goals and aspirations to be sure you are prepping them for a job they want.
Keep your eyes on today and tomorrow. Once you have a succession planning list in place and you know where your next generation of leaders are in their development process, use mentoring, coaching, stretch or rotational assignments, and regular feedback to close the gaps. Confirm employees are in agreement and ask them to set their own development goals and track their progress through regular performance assessments. Meeting expectations and ensuring employees are in alignment with their development and career track and timing is critical.
Validate, confirm. Review the succession plan with the C-suite and the board at least every nine to 15 months and when there is a major change in leadership or in corporate strategy/direction. This safeguards that you are up to date on the development of your top talent and that you identify any changes in direction that might require a tweak to the plan.
Factor diversity into decision-making. When managers seek employees to mentor and promote, they often gravitate toward people who are like them. If companies want diversity in their leadership, the succession-planning initiative should include steps that actively promote women and minorities for leadership opportunities and train managers to encourage diversity on their teams. Diversity includes attracting and including leaders who have different styles, strengths, and areas of expertise.
Make sure the board is onboard. Once assessments are complete, HR, the CEO, and the board of directors should come together to review the assessments and create a list of the top candidates for each role. By working with the CEO and the board, you ensure that everyone is on the same page about succession plans.
Companies make mistakes when it comes to succession planning; these most commonly include:
- Succession isn’t part of the culture. Succession planning fails when executives and all levels of leadership are not mentoring or shown how to develop their people. Leadership is a contact sport. Best-in-class companies encourage executives to identify and develop talented young leaders and often align key performance indicators (KPIs) and compensation with this responsibility. They have their leaders informally and formally involved in the development of other leaders. Culturally, it’s a badge of honor and responsibility to the firm, its legacy and future.
- Using the past to plan for the future. You need to choose leaders whose skills align with future goals. Ensure succession plans align with the long-term strategic vision of the business. Review what you believe you need of future leaders at least once a year.
- Having an unaligned board. CEOs and HR often think they have a succession plan in place or candidates identified, only to discover the board disagrees.
- Talent management roadblocks. When talented people top out in leadership roles, they can prevent the next generation from moving up. The best companies avoid these roadblocks by creating new positions, rotational assignments, and special projects (with high visibility), so future leaders have room to grow. Silos and not sharing talent across business units and divisions is also a barrier; your executives need to buy into talent sharing.
- Inappropriate decision-makers. For example, CEOs aren’t always in the best position to choose their successors. The best companies involve HR and the board when making succession-planning decisions, with input from the CEO.
- Blinders beyond the CEO. The best succession-planning programs include the executive team, senior management, and all other critical positions in your organization.
Sixty-five percent of companies with a robust succession plan are effective at driving improved business results, and 60 percent of companies are effective at accelerating change and business growth. Succession planning can be the lifeline of talent development and retention, especially when connected to selection process and strategy. However, succession is a big undertaking, so make sure you have the necessary resources and support to create a plan worth following.
Chuck Mollor is the founding and Managing Partner of MCG Partners, a provider of leadership, talent, sales, and organizational effectiveness solutions and Chamber of Commerce winner of “Entrepreneur of the Year.” For more than 25 years, Mollor has advised and consulted regional, national and international executives and organizations across industries, start-ups to Fortune 500, and not-for-profits. A former C-level executive, Mollor has led strategy, sales, marketing, product development, operations, and a global partnership of more than 100 consulting firms in 33 countries. He is an executive coach and strategic consultant specializing in coaching executives and leadership teams, and aligning strategy, leadership, and organizations to achieve business objectives. Mollor is a graduate of Executive Programs at The Harvard Business School, MIT Sloan School of Management, and The Wharton School, University of Pennsylvania. He has a B.A. in Political Science and a minor in Business Administration from Merrimack College. He is a certified Executive Coach from Lore International Institute (a Korn/Ferry Company) and Coaching University, and is certified in several behavioral, 360, and engagement assessments and surveys.