Why Succession Planning Is So Crucially Important

Article By Karen Higginbottom

Abrupt Departure Of Intel’s CEO Highlights Importance Of Succession Planning.

In June this year, Intels Brian Krzanich was forced to resign as CEO after it was discovered he had a consensual relationship with an employee. Chief Financial Officer Robert Swan has stepped in as interim CEO and the board has begun its search for a permanent replacement. The news of Krzanichs departure highlights the danger of organizations failing to have succession plans in place when an unforeseen event happens.

Succession planning is concerned with identifying business-critical roles that if unfilled for a prolonged period of time could leave a business vulnerable, says Ally Weeks, HR consultant for the Chartered Institute of Personnel and Development.

When linked with a talent management program, these potential risks can be mitigated by identifying and developing longer-term successors as well as short-term replacements. Each talent pool should be considerably larger than the range of posts it covers.

Its vital to have succession plans in place for top performers and those in business-critical roles, comments Tom Moran, CEO of Addison Group.

A lack of succession planning leads to uncertainty, which has a negative impact on companies of all sizes. Whether its a negative impact on company culture, a loss of knowledge of quality of output that effects client satisfaction or financial damage due to scared investors- a lack of succession planning opens companies up to risk.

The impact of a lack of succession planning can be quite substantial, remarks Dr. Ines Wichert, managing director for leadership consultancy Talupp.

Leadership development is all about getting leaders ready. Good leaders are important for organizations to stay competitive. They enable that through strong vision and staying focused through difficult times for the organization. Good leaders do improve team performance. When there is no succession planning, organizations find it hard to replace a leader with a good leader. There is increased unrest in organizations and in times of organizational changes to have stability at the top is critical.

Approximately 10% to 15% of corporations have to appoint a new CEO each year mainly due to retirement, resignation, dismissal or ill health. Yet despite these trends, most boards are unprepared to replace their chief executives. Heidrick & Struggles and the Rock Center for Corporate Governance at Stanford University published a survey in 2010 which revealed that only 54% of boards were grooming a specific successor and 39% had no viable internal candidates who could immediately replace the CEO if the need arose.

An organization’s top executive is one of the few variables over which boards have total control and their failure to plan for the departure of a CEO comes at a high cost. A study of the worlds 2,500 largest public companies shows that companies that scramble to find replacements for departing CEOs forgo an average of $1.8 billion in shareholder value.

Wichert warns that if leaders arent ready to assume the mantle of leadership, then there is an increased risk of derailment

The business environment is volatile and there is increased risk of digital disruption. In a volatile business world, you need leaders ready for unforeseen circumstances such as mergers and acquisitions and digital disruption.

Companies that develop strong succession plans are able to retain their talented staff after a departure and eliminate the risk of a costly, bad hire in a time of urgency, argues Moran.

Succession planning allows organizations to identify and develop those rising stars within the organization who will be capable of stepping up in the event of turnover.

Wichert believes that a good succession plan means that organizations have leaders ready.

Leaders are there to talk up the role. Its a better quality of leader that the organization gets. Leaders need to experience different situations and challenges and work in different operational environments. It means that you have a deeper leadership pipeline.

So who needs to be involved in the creation and implementation of the succession plan?

There are several players who should be involved in the development of a succession plan, recommends Moran.

However, this will vary based on the size of the company and its structure. In addition to executive leadership, the departments that are often involved in this type of work are: HR, learning and development and internal recruiting.

At the senior level of the organization, leaders can support succession planning by keeping certain roles open for developmental practices, advises Wichert.

At the very top of the organization, its important that the CEO keeps some roles open just for development so emerging leaders can learn about challenges.

Not all organizations will have a formal succession plan but there are other ways to aid the process, remarks Moran. This often involves training, cross-training, job shadowing, career pathing and mentorship programs.

However, succession plans can present quite a few challenges for organizations, reflects Wichert. Organizations need to make sure that people have the potential to go to the top or the organization. There can be concerns of derailment if you push emerging leaders too much as they may be in danger of burn-out.

One of the most obvious challenges associated with succession planning involves the expectation that high performers must think beyond their current involvement with an organization and plan for a future in which they are no longer there, comments Moran.

In order to mitigate that issue, its important to have open, honest conversations about the importance of succession planning without making employees feel that they are not being valued for their current contributions.

Another major challenge is the selection of successors, adds Moran.

While promotions are often viewed as rewards for hard work, its important to choose successors who will be the most successful in the position as opposed to those who are best in their current role. Planning for an event that has not happened poses its fair share of challenges but having a solid, well-documented strategy will at the very least eliminate ambiguity and allow for a more scientific approach to succession planning for all involved.

There are still issues over the lack of diversity around succession planning, concludes Wichert.

Its still a very masculine description when you describe a good leader. An emerging realization for lots of organizations is that the succession pipeline and view of talent doesn’t go far enough in the organization and is only from mid-level upwards. That is where the pool of talent is important and that will feed into the succession plan.

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