Leadership transitions happen in every company. Whether the transition happens suddenly amid news reports of questionable actions or smoothly after a retirement, a change in the top leadership of a company brings uncertainty throughout the organization.
In recent years, CEO turnover has been increasing, according to data from Challenger, Gray & Christmas, Inc. 2019 showed the highest rate of CEO turnover since the firm began tracking CEO turnover in 2002. Beyond the CEO position, turnover across the C-suite increased in 2019, according to the 2019 Crist, Kolder Associates Volatility Report.
“Obviously, succession planning is key,” said Dave Ramos, CEO of Washington, DC, based Shiftpoints Inc. and author of Drive One Direction and Decide One Thing. “However, many companies do not have fully-developed succession plans for their CEO. Sometimes the succession plan is not enough. Companies can get stuck in limbo because of the high degree of uncertainty at this time.”
Companies need to prepare now for transitions, but a traditional succession plan may not be enough. Failing to account for future business needs, lacking a diverse and robust leadership pipeline and ignoring plans to pick a favorite can all spell trouble for a transition.
Different Situations, Different Needs
“When a CEO leaves abruptly—whether due to illness, scandal, internal politics or other reasons—it can force an organization into crisis mode, often leaving C-suite leadership scrambling to maintain normalcy and reassure stakeholders that everything will be okay,” said Andrew Chastain, CEO of WittKieffer, an Illinois-based global executive search firm. “Having a succession plan in place for such an occasion that, at a minimum, designates an interim chief executive can help alleviate some of that pressure. Beyond that, careers and emotions are often tied to a certain CEO, and so it can be a trying time personally and professionally when a leader exits.”
However, succession planning serves more purposes than what to do if the CEO gets hit by a bus, said Bob Ryan, principal and partner at Shields Meneley Partners, a Chicago-based executive consulting firm. “The planning should focus personal development for key players, find business vulnerabilities, identify high potentials and get the board involved,” said Ryan. “The planning should also extend beyond the C-suite to critical positions throughout the organization.”
When planning for various transition scenarios, Carl Robinson, Ph.D., founding partner at Vantage Leadership Consulting in Chicago, says the company needs to ask tough questions around career and retirement interests and business needs.
“The company’s timing might be quite different than that of the individual,” said Robinson. “Roles are not static, and the competencies required for success today are unlikely to be the same for tomorrow. The company also needs to understand the ambitions, interests and requirements of those being considered for promotion. The maintenance and enhancement of culture is one consideration to promote from within, rather than hire from the outside.”
Drawing from a Robust Pipeline
Once the business needs are established, the company needs to take the next step of determining the appropriate candidates. Companies need to have a leadership pipeline that offers a diverse slate of candidates with a broad definition of potential.
“The challenge of identifying a diverse set of candidates rests with the organization’s broad approach to welcoming in the widest range of employees in the first place,” said Robinson. “Organizations that suffer from unconscious bias tend to confront the challenge that there are too few–if any–diverse candidates in their pipeline. This is a problem that needs to be addressed systemically and over time.”
Dale Rose, Ph.D., president of 3D Group, a feedback firm based in Emeryville, Ca., notes that the biggest mistake companies make is to use methods that are not valid predictors of performance when choosing successors.
“Too often, successors or high potentials are identified by senior leaders who have their own agendas and don’t reference valid data when making their recommendations,” said Rose. “One way to improve diversity in succession plans is to look more broadly at potential, rather than looking only at a recommendation, job history and industry exposure. While some job knowledge is essential—no one wants a marketing executive to be promoted to controller—leaders can cross functional areas more effectively today than ever before.”
Avoid Picking Favorites
While formulating a thorough succession plan may seem like the final step, companies can still stumble by failing to consult those plans when the time for transition comes.
“Many companies make succession planning an annual exercise to appease risk managers but then ignore the results when it matters most,” said Rose. “Companies spend considerable time and effort mapping out succession plans but then ignore the plan completely and pick a favorite of someone who is in a position of power.”
Rose advises that companies eschew this political mindset and empower HR to develop a rigorous talent assessment process for planning purposes and then leverage the plan when needed.
Succession plans are intended to reduce anxiety and uncertainty around leadership transitions, and companies will bolster their chances of success with a thorough consideration of business needs, a solid leadership pipeline and the courage to stick to the plan.