What do you need to know about succession planning? Well, the first thing is that succession planning when done right is really a core business process. It’s a core business process that’s designed to manage risk. For CEOs, CEOs obviously have a critical role in determining the strategy, executing the strategy, and when we think about CEO succession planning ultimately what we are doing is we are ensuring business continuity and a plan that will help us manage risk such that in the event of an emergency succession situation or when it comes time to think about what CEO is is most appropriate to execute the new strategy that the organization has a plan to ensure its continued success.
Another thing to know is that, and most frequently this is what comes up in the clients that I have worked with, specifically when it comes to serving board of directors is that effective governance is critical for successful CEO succession planning. It is absolutely critical to understand who owns succession planning for the CEO. Is it the management team? Is it the CEO? Is it the board of directors? Is it a committee within the board? Is it the chairman of the board? Is it the family committee if you’re working with a family-run business or a not-for-profit. That’s a really critical thing that we’re going to dive into in this presentation.
Another important thing to know and as Erin alluded to when she teed up my introduction is that one of the ways Axiom approaches succession planning with our organizations is this approach of being relevant and adapting to the needs of the business from the markets from which they serve. Just as businesses need to adapt to stay competitive in the markets that they choose to serve, so to should their succession plan. I will use this phrase and I borrowed this from Marshall Goldsmith, if any of you have read his book, but what got you here won’t get you there. That is most certainly the case when it comes to succession planning and thinking about the types of leaders that you bring aboard to execute the strategy.
Another thing that’s important to know is that leadership talent reviews truly form the backbone of succession planning processes. We’ll get into that in a little bit more detail but a leadership talent review is that process by which talent is reviewed across the organization and laterally up through the organization. It’s the process by which high potential leaders are identified, vetted, and most importantly developed to ensure that robust bench strength and pipeline of talent.
We also want to know about succession planning and more and more frequently assessments has become a topic of conversation. Leadership is a very dynamic and complex phenomenon. If anybody tells you they have an assessment or they have a methodology or they can determine the right CEO when he or she sees them, that’s just not the case. Leadership is a very, very complex behavior. It’s difficult to measure. When we think about succession planning and how you approach succession planning, in order to measure that phenomenon you really need to examine leadership through multiple lenses. We’re going to go into detail on that.
Finally, a succession plan is no more than a piece of paper in the filing cabinet of a desk of the CEO if it’s not tied to leadership development processes. The key point there is it’s critical to integrate succession planning into leadership development programs for the long-term sustainability of the business and for the succession plan to truly create value.
Now what we’re going to do is we’re going to take each one of these areas and we’re going to unpack them and describe them in a little bit more detail and as I understand there’s going to be questions towards the end of this presentation. As we go through this certainly capture those as we move forward.
In terms of succession planning as a business process to manage risk. There’s been some interesting research, particularly done by the conference board. What the conference board has done is they’ve surveyed executives on this concept of risk management and particularly how organizations manage human capital risks. What’s really interesting about how organizations manage risk today is out of all the areas the executives that took the survey human capital risk management rates fourth amongst the collection of risks that are managed. However, it’s tenth in a list of 15 in terms of how effective it’s managed. For those of you that are familiar with risk management processes IT risk, security risk, financial risk, supply chain risk, reputational risk, those are all areas that are very, very closely managed by companies.
Interestingly, succession and human capital risk hasn’t received the attention. I believe it’s starting to to this next point because of what I alluded to earlier is succession planning when done right not only ensures business continuity so that plan that you have in place for succession but it also can be used as a competitive advantage.
Another point to know about succession planning as a business process, succession planning is a dynamic and continuous process. One of the things that many organizations do is they approach succession planning and they think of it as the report, the binder that is brought to the board meeting, and the nominating committee reviews the slate of candidates and nothing happens for the entire year until it comes time again for that next board meeting. Well, effective succession planning must be a continuous and dynamic process such that if the need arises for a successor there isn’t a committee that gets pulled together. There isn’t a long drawn out process of vetting candidates. The candidates and who to place in the roles is very apparent.
What succession planning as a business process also does is it creates an improved understanding and it creates transparency for the leadership talent portfolio. What we mean by transparency and understanding, it provides visibility to high potential leaders as they grow in the company. You can understand what leaders are those emerging stars, how do they perform, and where are their opportunities to take those leaders and expose them to the right types of experiences that will continue to grow them.
This last point really doesn’t need to be made given what I just mentioned but it’s much more than getting hit by the bus scenario that frequently we hear from organizations. It’s more than having the slate of candidates. It’s about really considering what are the needs of the business, what’s the talent pool, how deep is that talent pool, and how broad is that talent pool?
In terms of unpacking the other area related to effective governance, clarifying accountabilities and ownership for CEO succession planning is paramount. That is really kind of the key point here is that if you don’t know who owns succession planning, making decisions, people decisions, become very challenging. Boards of directors of public companies are ultimately accountable for CEO succession. There is a mandate by whatever exchange they’re on. There’s different mandates, there’s different requirements, whether you’re traded on the NYSC versus the NASDAQ but ultimately board of directors is accountable for CEO succession. There are some nuances and we’ll get into that in a little bit.