Planning for succession

The fundamental point of succession planning is that you have to work out what objectives you want to achieve through the succession. Selection is mostly driven by a focus on the ‘who' rather than the ‘what'. If the organisation has done well in the past, it is all too easy to say: We want another one of those, a clone. If the organisation has not been travelling well, then the selection committee may well react by saying that it wants someone entirely different.^[29]

Succession planning also may not take priority if the CEO is apparently fit and performing well. Or if it does not have the incumbent CEO's support. The CEO may not want to contribute his or her views about what an ideal successor might look like for fear of losing power or control, or being seen as not perfect.

Indeed, forcing the CEO into succession planning can lead to what has been called ‘The Successor's Dilemma'. The incumbent CEO is so troubled by the process that the designated potential successors become frustrated-unable to push too hard for fear of alienating the CEO, but worried that not pushing hard enough will be seen as a failure to warrant promotion to the top job.^[30] The end result: they leave.

This should not deter the board. The planning should continue. It could take the form of regularly assessing, say every six months, the challenges and scenarios facing the organisation at that point and over the next three years. Then determining the skills and attributes of a chief executive, if one had to be selected in the near future, necessary to formulate and implement strategies to deal with those challenges.

The approach of ‘what, not who' is essential because the CEO is an important component of organisational performance, but not the only one. Given the known impact of not addressing cultural issues, for example in merger and acquisition activity, the board must have a clear sense of what the existing culture is and what needs to change if they are to properly exercise their governance responsibilities.

The essence of the succession plan is that strategies are in place to know, at any point in time, what the next CEO will have to achieve and who might be potential internal and external candidates.

If there are no suitable internal candidates, or if the organisation is too small to develop a pool of internal candidates, it is even more critical to develop a succession strategy. It may be worth considering retaining a firm that could keep a watching brief. However, if directors have succession planning as a regular item on the board agenda, they too will be on the lookout for potential senior executive talent that might match the organisation's current and future needs.

My preference is that succession planning should have both an internal and external focus. It is true that the external CEO market is more limited than most other executive markets. Many candidates are employed elsewhere and may not be easily identifiable. Even if they were, it will almost certainly take time to lure them away from their current position. The recruitment process will be lengthy and expensive. However, it is not always necessary to bring people in from outside straight to the top job. For example, the position of CFO was created for Bill Wavish, an external appointment, as part of the succession planning process at Woolworths. Chip Goodyear, now CEO of BHP Billiton, was also brought in from outside to fill the position of CFO.

In my view, succession planning is all about preparation ‘preview' and thoughtful assessment, whether the candidates are internal or external.

Realistically, an externally appointed CEO is going to take 3-6 months to get to know and understand the culture and the politics of the organisation they are now leading. As organisations navigate the pressure of shorter timeframes to deliver results, it is essential that they maintain the discipline of succession planning even as the new CEO takes the reins-regularly evaluating potential candidates, not against each other but against the requirements of the position. This approach might also help to minimise the inevitable power-plays that will go on between potential candidates and/or their supporters.

The comfort of a pool of internal talent might also give the board and other stakeholders more confidence to allow the CEO sufficient time to produce the results they are looking for. It also could be a useful platform from which to withstand short-term market pressure.

Unplanned openings

Research suggests that many boards do not embrace succession planning, let alone take culture and cultural change skills into account in the selection of a chief executive.^[31] In those organisations, succession planning is not a ‘plan' at all. It is a reactionary event, approached with a ‘crisis' mentality. As a result an expedient appointment is made, often without proper consideration of the opportunities that a change in the top might offer.

My own view is that, even in an unexpected or unplanned-for opening, it is always preferable to take full advantage of the opportunity. In the absence of a considered succession strategy, the organisation can use this chance to make sure that the needs of the business going forward are fully identified before beginning the search for the new CEO.

Time is always critical, but so is timing. As a temporary measure, the chair of the board can step into the role as acting CEO, maintaining cultural continuity and strategic focus. Alternatively, the board could appoint an interim CEO on a contract basis.

Developing the leadership pool

The examples presented throughout this chapter illustrate that succession planning, or indeed the lack of it, can be inherently messy and a very costly exercise. Nonetheless, in the future there will be an even greater emphasis (if that is possible) on a leader's ability to motivate people to give maximum performance, withstand changes and create success for customers, shareholders, governments and other stakeholders. If this is not part of the prevailing culture, then challenges lie ahead for senior executives and for their organisations.

Competition will intensify to attract those people who are capable of leading organisations in times of uncertainty, pressure and complexity. Attracting, developing and retaining these potential leaders will be a major risk management strategy . . . and for those employees, financial motivators will not be enough.

One of the most common ways to retain potential leaders is to provide some form of leadership development that goes beyond technical skill-based training. Leadership programs should include an in-depth study of culture and the specific cultural aspects of their organisation, and how to maintain, preserve or change them if necessary.

The critical next step is to link the leadership development programs with specific succession planning strategies that take into account anticipated cultural attributes, not simply generic leadership skills or achievement against performance goals.

A further vital element of an overall succession planning strategy is to ensure that the performance management strategy of the organisation includes an assessment of commitment to the culture as well as goal achievement. This can be confronting.

The first time I experienced this was when, as a human resources director, I was faced with the following situation.

A member of a sales team, who always met or exceeded his budget, was regarded as a ‘star' by the head of the division and to be his most likely successor. The problem was that this ‘star' had no interest or concern about how he or his work methods destructively affected others. The head of division either did not see this, or refused to because of the financial goals this employee kicked.

At the same time, the executive team had embarked upon a major effort to change the culture of the company, which had been individualistic and closed. A new way of working had been developed and agreed with all staff through a lengthy and inclusive process. Everyone signed up to the behaviours (values) of respect and teamwork.

The head of division argued strenuously to keep the difficult employee, saying that the divisional budget depended on his performance. Eventually we let the employee go and, perhaps not surprisingly, the other team members' performance improved dramatically and the division easily reached its targets.

What was the basis of the decision? There are four potential combinations of performance and culture:

great performer, lives the values
poor performer, doesn't live the values
great performer but doesn't live the values
poor performer but lives the values.

^[29]An interesting research project would be to track the relative performance of the replacements for the large number of chief executives who have been axed for ‘poor performance'.

^[30]For an excellent article on this topic see D Ciampa & M Watkins, ‘The successor's dilemma', Harvard Business Review, November-December 1999, p. 161.

^[31]Korn/Ferry International Board of Directors annual studies regularly show a minority of companies surveyed have formal succession plans in place. See particularly Board of Directors study in Australia and New Zealand, Korn/Ferry, 2000.

^[32]J Collins & I Porras, Built to last, Random House, London, 1994.