As the pandemic crisis unfolded, one of the first things corporations put on hold was succession planning. More than a year later, many are struggling to find a strategy that ensures both the future of their effective leadership and the business recovery necessary to take those steps. The current environment of VUCA (volatility, uncertainty, complexity, ambiguity) certainly poses a challenge for board leaders as they seek to develop – and in some cases, completely rethink – their succession planning. But it also highlights the urgency for such contingency planning.
According to a recent study, only 54% of public companies are actively developing a CEO succession plan at the moment. Even more surprising, a full 40% of companies lack even a single internal candidate who is ready to step up to the CEO role should it become suddenly necessary. Over the past year, COVID has claimed millions of lives worldwide, and many organizations have found themselves with unexpected vacancies. The delay in filling vacancies can be attributed to a lack of proper succession planning.
In a survey conducted by AESC, leadership assessment and succession is one of the top services that CEOs and boards tend to seek in 2021.
When one also considers that companies across the globe spend a combined $370 billion each year on leadership development, it becomes imperative that organizations make a serious assessment of the processes they have in place.
“Succession planning is about more than the search for talent prospects for a vacancy. It is about continuously and consistently keeping a look out for the right leader who is relevant for the organization at a given point in time.”
Succession planning is about more than the search for talent prospects for a vacancy. It is about continuously and consistently keeping a look out for the right leader who is relevant for the organization at a given point in time. Since corporate boards have better visibility of the various forces in play viz company performance, market dynamics, and the organisation’s position on its growth trajectory, they can plan ahead for the contingencies, minimize risk, and help navigate corporations better.
Succession planning is a business strategy to identify and develop a new generation of leaders to create a pipeline of talent within an organization. It ensures that businesses continue to run smoothly after those in a company’s most senior roles move on to new opportunities or if the board decides to replace an existing CEO based on the company’s performance.
C-level succession is not always amicable. Some CEOs perceive the stripping of power as a threat and are reluctant to pass on their legacy. Sometimes the situation turns hostile, and boards are faced with the predicament of resolving the matter discreetly while maintaining the company’s reputation to protect stock prices.
It’s a monumental task for boards, who find themselves making a series of tough decisions: whether to replace an existing CEO, start developing C-level talent for the future, or explore outside talent for a replacement.
For boards to make an informed choice, they have to calibrate the pros and cons. Making the wrong decision at any step could have catastrophic consequences for the organization and for board members. Therefore, it’s in the board’s interest to do everything possible to mitigate failure, which means having a well-considered strategy developed before a time of crisis arises. This way, there’s a pool of relationships that can potentially serve the board well for years to come, and in the worst-case scenario where a leader is forced to make a quick exit, valuable time can be saved in kicking off the process.
It’s crucial for the board to have a clear, unified approach on succession planning. Members not only have a direct impact on the type of people that join the organization but also who is allowed to stay. The board needs to be transparent about what a potential successor will face so that expectations are as clear as possible. At that point, it is simply a matter of assimilation. The first 90 days of someone’s tenure will always be among the most critical, which is why the transition itself needs to go smoothly. This is especially true if a new leader is coming into the organization from an external source — they need to be able to hit the ground running, and it is up to the board to make that happen.
It is important to acknowledge that outside candidates can and often do provide an interesting perspective that most boards may not necessarily have access to on their own. Oftentimes they can bring an objective point of view on the proceedings because they are not as “close” to the situation as the board members are themselves. Therefore, they are in a better position to make tough decisions because they have not yet developed any relationships, and they have yet to invest themselves in the “political” side of the company.
The most important part of any board’s strategy for effective leadership succession planning is the timing. Here are the most important steps board leaders can take as they strive to build the right approach.
Network with the right set of talent: Networking is one of the critical attributes of leadership.Corporations thrive on networking. Being an effective influencer at the leadership level across the organization and beyond can help strengthen and diversify network ties in corporations. Building and fostering a strong network of skilled and influential leaders within and outside the organization gives boards an upper hand and access to the niche talent pool at the leadership level.
Identify and nurture internal talent: A strong succession plan involves identifying and training existing talent and cultivating future leaders, not just at the senior level but across all levels. This helps businesses with a contingency plan if an employee plans to exit abruptly. Since the seniors feel insecure, they avoid succession planning, as they fear that nominated successor may elbow them out. Companies need to be far more vigilant about grooming their existing talent for advancement.
Personal, professional, and intellectual integrity of the boss is very crucial in implementing succession planning honestly. Likewise, people in leadership positions need to be held more accountable for who their realistic successors can and should be. In a general sense, boards need to be in tune with this process so they can better position themselves to make solid decisions regarding whether they should be promoting from within or looking for external talent.
Be proactive, not reactive: For the best results, the board needs to make a proactive effort to keep a keen eye on future leaders. Even if the current CEO is not thinking of stepping down or there are no other “problems” to speak of, this still needs to be a priority. The board needs to be constantly scouting and scanning the market, if for no other reason than just to keep abreast of the opportunities out there. They need to be networking with the right talent and courting potential successors whenever possible. They need to accept the inevitability that someone in a key position is going to resign or leave the company sooner or later.
It is no longer a matter of if but when. Therefore, they need to have a plan in place to address it today so that they can quickly snap into action when that day arrives. This requires a thought-out, well-laid strategic approach to planning to acknowledge that the company itself is bigger than any one person.
Along the same lines, a strategy for effective leadership succession planning requires a significant expansion of the board’s role to begin with. The scope of their job should not just be limited to succession planning for the CEO. They also need to be actively engaged in developing and cultivating the next layer of key critical leadership talent, as well.
Assess the situation and plan ahead: The exodus of senior leadership does not happen overnight. Boards should keep an eye on the company’s prospects, leadership, and changing attitude of their workforce. Assessing the situation continuously gives companies an upper hand in being prepared for any leadership shuffle. When choosing C-level executives, boards should focus on assessing factors like whether the company is not performing well and whether that stems from organizational culture or leadership style. Would onboarding a new leader from the outside bring in a welcome new perspective?
Build a strong, competent board that can fill in the gaps: Boards can make it a practice to assess the top level of executives and foresee the talent challenges that may arise. Strong, dedicated board members are critical for making a positive difference to the organizations on whose boards they serve. The Global Board Services Practice at Stanton Chase is about making our clients’ boards better through our methodology, which includes qualitative and quantitative approaches to provide our clients with 360-degree assessment.
Ultimately, with a strong board of directors in place, a company can impact both the present and the future in a meaningful, positive way. But you cannot get to that point without a high-performing board to begin with. Succession planning is important because a company can and should be bigger than any one individual. Regardless of how strong someone’s leadership is, the company itself should be able to withstand this type of disruption and come out all the better on the other side.
It is equally important to acknowledge there is no one-size-fits-all approach to succession planning. Some companies will seek to execute this process with the help of recruiting firms. Others will look externally for the talent they need when they need it the most. Regardless, a strong governance-focused leadership development and succession process is of critical importance.
It takes a significant amount of time and effort, but the vast majority of organizations will find that the rewards far exceed that initial investment moving forward.
About the Author:
Ashwini Prakash is a Managing Partner of Stanton Chase India. She has over 18 years’ experience in executive search and specialises in board services and CEO succession and hiring. She is a Leadership Assessment Consultant, Organisation Culture Expert, and Corporate Director certified by the Institute of Directors. She has a keen eye for observing and studying the interplay of people, corporate relationships, and power dynamics.