It is never too soon to start developing a succession plan for the top executive positions in an organization. Such plans take time to develop and come to fruition. Here is a brief outline of the steps:
This step should be in process continuously. It involves determining which positions need successors and what knowledge, skills and abilities will be needed for those positions in the future to have a successful enterprise.
Development, when affordable, should start early.
This, too, is ongoing. It is the training and development of the inside candidates and the search for and recruitment of outside candidates that fit the ideal candidate profiles. This step takes time to implement…maybe years if you hope to develop talent internally.
Here you are screening, selecting and negotiating terms with the successor. Often, you will need to circle back and revisit plans and development steps if strategies change. Eventually, though, a successor must be chosen.
This is the handing off of the baton from a retiring executive to his or her successor. It is fraught with risk and should be carefully planned and
monitored. Most new employment relationships that are going to go bad will do so during the first six months while a transition is occurring.
There is a lot to do to make succession planning work. We will be happy to present an overview of the process to your executive team and/or Board at no cost
According to new research at Rock Center for Corporate Governance at Stanford University, more than half of companies today cannot immediately name a successor for their CEO, should the need arise. Boards spend, on average, only two hours a year to discuss this topic, and less than 50% have a written document detailing the skills required for the next CEO. There are large planning and communication gaps, but we have found some helpful suggestions for boards.
If a succession plan exists, but it is intangible, companies can feel a false sense of security. Boards should draft a succession plan one to three years prior to needing one. This is so candidates can be groomed to acquire the knowledge and skills necessary to handle the responsibilities of the role if and when it falls upon them. It is also important to create open and direct lines of communication between the board and potential internal candidates, while keeping the “runners up” happy, just in case.
Small companies may think they lack the time to do such planning and development, but a good process only requires a few hours up front and a steady focus over time. A little advanced planning and organizational development, when combined with an effective external search process, will offer your company the most viable pool of candidates. It’s much better than picking names out of a hat.
According to a recent WorldatWork survey of large companies, over 30% have no succession plans in place and 50% of executives say they do not have a successor for their current role. Why? They cited a number of reasons:
Not enough opportunities for employees to learn beyond their own roles (39%)
Process isn’t formalized (38%)
Not enough investment in training and development (33%)
Not actively involving employees or seeking their input (31%)
It only focuses on top executives (29%).
A lack of succession planning can lead to a lack of strategic direction and weakened financial performance, but it is hard work and Boards tend to make it a task instead of a strategy. We will be happy to share an outline of succession planning as a strategy. Just go here and request it: http://matthewsyoung.com/contact.htm
The three envelopes for succession planning
Or, you could use the three envelope approach. I learned this approach from a fellow who had just been hired as the new CEO of a large, publicly held company. The CEO who was stepping down met with him privately and presented him with three numbered envelopes. “Open these if you run up against a problem you don’t think you can solve,” he said.
Well, things went along pretty smoothly, but six months later, the net interest margin took a downturn and he was really catching a lot of heat. About at his wits’ end, he remembered the envelopes. He went to his drawer and took out the first envelope. The message read, “Blame your predecessor.” The new CEO called a press conference and tactfully laid the blame at the feet of the previous CEO. Satisfied with his comments, the press – and Wall Street – responded positively, the stock price began to pick up and the problem was soon behind him.
About a year later, the company was again experiencing a slight dip in margins, combined with serious balance sheet problems. Having learned from his previous experience, the CEO quickly opened the second envelope. The message read, “Reorganize.” This he did, and the stock price quickly rebounded.
After several consecutive profitable quarters, the company once again fell on difficult times. The CEO went to his office, closed the door and opened the third envelope. The message said, “Prepare three envelopes……….”
With the “Boomers” reaching retirement age, executives are beginning to retire in large numbers, but will the new CEOs walk into empty Boardrooms? Let’s face it, becoming a Board Member is not as glorious as it once was. The liability one takes on in the current litigious environment and the work necessary to do the job well is rarely offset by the rewards, financial or otherwise.
We worry about attracting and retaining qualified directors to represent shareholder interests in the future. Recruiting and grooming future directors needs to be an ongoing process of a Nominating Committee. We have been on the lookout for practical solutions to this dilemma, and recently found a case study in the “ABA Banking Journal.” A number of years ago, First United eliminated its three Advisory Boards. In their place, an Advisory Council was created. Care was used in terming it a “council” and not a “board.” This made it clear that the role was advisory, and it did not bear the legal responsibilities of the Board.
According to William Grant, chairman and CEO, the Council meets six times per year, in a dinner meeting following our Board meetings. This affords our Board members the opportunity of attending and observing. The Council’s agenda is to kept abreast of the bank’s activities, and to solicit their input on a number of market‐related issues. The majority of the Council members are community oriented businesspeople, and able to bring this perspective to the meeting.
This arrangement provides the following advantages to the Bank:
It serves as a valued “blue sky” advisory group to help the bank establish and execute strategies
It provides a “farm system” for future directors by affording members the opportunity of learning about the bank, its mission, and its culture. The bank gets to know them. If there is a fit, then that person may eventually become a director. In fact, the last several directors at First United have come to the board by this route. If there is not a fit, then that becomes known before a member is placed on the board, and one side or the other comes to this realization.
It facilitates an environment where the Council member and various directors come to know each other, making the selection and nomination of future directors an easier chore.
This approach seems to address the issue nicely. We would love to hear other ways that have worked for you. Please comment below. Thank you. To discuss your Board’s succession planning process, call me at 919-644-6962 or complete a contact request at http://matthewsyoung.com/contact.htm.