CEO Succession Planning - It's All About People

Last week’s blog about Interim CEOs seemed to strike a nerve. One reader even told us “You have no idea how timely this is. I am right in the middle of this exact discussion.”

Keeping with the topic of CEO succession, I asked Alice Sayant, co-founder of DirectorPrep.com™, to share her views about the board’s approach to succession planning.

Alice’s Take on Succession Planning

So, Scott gets to write about the controversial topic of interim CEOs, and here I am writing about the unsexy, decidedly noncontroversial topic of succession planning. How is that fair?

Why is succession planning noncontroversial? Because everybody agrees it’s a good idea – more than a good idea, it’s a key board responsibility and vital to the organization’s success. According to one source, 86% of leaders believe succession planning is an urgent or important priority. In researching the topic, I found no sources whatsoever that claimed succession planning is harmful, stupid, or just a waste of time.

But wait a second. The same source also says only 14% believe they are doing it well, or doing it often enough. And I found that kind of inconsistency between beliefs and practices echoed again and again. How can that be? If it’s urgent, important and vital to the organization’s success, doesn’t it make sense to make sure we are not just doing it, but doing it well and doing it regularly?

Maybe there is something to explore here after all …

What is Succession Planning?

Let’s start with the basics. What do we mean when we talk about succession planning?

We’re talking about the process of developing talent to replace executive, leadership or other key employees when they transition to another job, leave the company, retire or are unable to continue in their role. The process aims to create a talent pipeline of successors to keep the organization running smoothly when inevitable staff changes occur. Doesn’t that sound lovely?

Succession planning often refers specifically to the CEO or may be expanded to include the C-suite, key leaders, and the board itself. For the CEO and top leadership positions, the board of directors must be involved, less so when considering roles further down the corporate ladder.

For today’s discussion, I’m going to focus on CEO succession planning, specifically the ongoing process of identifying and developing potential successors to the current CEO. This process should begin long before the CEO’s departure is imminent.

There’s a famous story about the long, drawn-out CEO succession at GE that culminated in Jeff Immelt replacing Jack Welch. Apparently, the board’s first question to Immelt after he became CEO was, “Who’s your successor, Jeff?” Whether or not this story is true, it illustrates the need for the board to always be thinking about CEO succession.

As for the topic of selecting a new CEO, we’ll leave that to another issue of The Savvy Director™.

The Succession Planning Process

In their book ‘Governance Solutions: The Ultimate Guide to Competence and Confidence in the Boardroom’, David A.H. Brown and Dr. Debra L. Brown describe the CEO succession planning process as first and foremost a business process that the board puts in place to manage risk ─- a process that takes time, thought and strategic insight.

OK, so far so good. The board, supported by management, is good at handling processes. It sounds like a lot of work, but so is everything else the board does.

So why isn’t this particular function being handled well by so many boards? Why is it so often deferred, forgotten, or mishandled?

I turned to the Deloitte Insights article ‘The holy grail of effective leadership succession planning’ for some valid reasons:

1. It takes years to bear fruit. The only time the board feels a sense of urgency, is when a transition is imminent.
2. Boards are afraid it will be perceived as a lack of confidence in the current CEO and management team.
3. Accountability is not clear. Who is responsible? The board? A committee? The CEO? Human Resources?
4. Subjectivity and politics come into play. Even where data exists (such as executive assessments), boards still make decisions based on likability, sponsorship, tenure or pure opinion.
5. The board has not established a clear process, methodology and tools.

It strikes me that, while the last reason can be addressed in a relatively straightforward way, the first four have something in common. Think about it – no sense of urgency, worry about perceptions, subjectivity, politics, opinion, lack of role clarity – they are all due to the foibles and weaknesses of our human nature. Let me paraphrase for you …

• Can we put it off? Yes? Then let’s do that.
• It might hurt someone’s feelings? OK, better not do it then.
• It’s not my job (or our job). Let someone else do it.
• The data says X is the right candidate? But we like Y. Let’s pick Y!

Taking Human Nature into Account

When I used to teach Change Management, I found force field analysis to be a useful tool. The idea behind it is that situations are maintained by an equilibrium between forces that drive change and others that resist change. For change to occur, the driving forces must be strengthened or the resisting forces weakened. Time and again, I found that it’s more effective and easier to mitigate, weaken or somehow compensate for the resisting forces than it is to strengthen the driving forces.

In the case of succession planning, that implies it would be more effective to acknowledge and mitigate the forces of human nature, than it is to try to strengthen the driving forces (such as by arguing for the good reasons to do succession planning). How can we do that? Why not make the whole process more sensitive and responsive to people’s fears, concerns, and trepidations?

Consider the Four Approaches to Succession Planning from Deloitte Insights, depicted below.

The Competitive and Compliant approaches on the left side of the grid are overly process-oriented and ignore – or even aggravate – the forces of human nature that we’ve talked about. The Comfortable approach, while it definitely takes human nature into account, lacks a clear process and is overly intuition-based, where ‘gut feelings’ are the decision criteria of choice.

Deloitte argues for a Centered approach (the upper right quadrant), and I tend to agree. This approach relies on sound tools and processes but is also people-focused.

“Recognizing that succession planning has a huge impact on the careers of current and prospective leaders, [a centered approach] focuses on creating an environment that channels emotions productively into the succession planning process. … The aim is to create a succession program that leaders want to participate in.”

Key Practices for a Centered Approach

Here are five practices that take human nature into account, helping to move your organization toward the centered approach.

1. Make succession planning worthwhile for the people most affected by its results.
2. Establish accountability and advocacy. Make it someone’s job. Identify champions.
3. Orient toward the future. Build the plan around the organization’s future needs rather than current ones.
4. Create short-term goals to sustain a long-term focus. Break the task down into smaller components with near-term milestones.
5. Establish tools, processes and messaging to cultivate transparency and trust. Provide context and bring the process out into the open.

What can an individual director do?

If you feel like you are the one lonely director on your board who wants to create a CEO succession plan, what can you do?

First of all, try a force field analysis. Identify the driving and resisting forces, not just on the board, but within the management team and the organization. As I mentioned above, it would be more effective for you to try to weaken the resisting forces than to apply pressure to the driving forces. Everyone already knows it’s the right thing to do. More arguments about the benefits of doing it, and the risks of not doing it, are unlikely to make a difference.

Second, take a people-centric approach. Have you heard of WIIFM (What’s In It For Me?) The CEO, the management team, and those in critical positions are all wondering What’s in It For Them. Do you have an answer?

I can attest from first-hand experience that the WIIFM factor can be totally different – and may even be diametrically opposed – from the point of view of the board, the CEO, and the potential successor. What the board feels is needed in a leader is not necessarily the same as what the CEO believes is important, or what the potential successors are trying to demonstrate. And that can lead to aggravation, disappointment, and disengagement all round.

By considering the viewpoints of the various players, you can more easily identify and, hopefully, deal with the inevitable downside. The people involved are not just chess pieces to be re-arranged as the board sees fit. They have the inconvenient habit of making their own plans and following their own dreams. As just one example, think about a potential successor who, fully expecting to be the next CEO, is not chosen by the board when the time comes. Not only are they ‘flight risks’ but, if not dealt with fairly and compassionately, they could harbor bad feelings for a long time.

Finally, this wouldn’t be The Savvy Director™ if we didn’t advocate for you to move your board along by asking some well-placed, non-threatening questions like ‘Looking down the road, what critical capabilities will our next CEO need to ensure success?’ or ‘How do we need to prepare for the day when we need a new CEO?’ or even ‘Who in the C-suite expects to be our next CEO?’

Resources:

• Deloitte Insights. The holy grail of effective leadership succession planning
• Harvard Business Review. Succession Planning: What the Research Says
• Russell Reynolds. A Practical Guide to CEO Succession Planning
• Russell Reynolds. Is Your CEO Succession Plan Crisis-Era Ready?
• Spencer Stuart. CEO Succession Planning: The CEO’s Critical Role

Thank you.

Alice

Scott’s takeaways:

I’d like to thank Alice for pulling together some sources and offering her insights about CEO succession planning. Here’s what I took away from today’s blog.

• Everyone agrees succession planning is important, but few are doing it well.
• To be effective, it’s important to have both a sound process and a people focus.
• When considering the forces resisting change, keep WIIFM in mind (What’s In It For Me?)
• Encourage your board to engage in succession planning by asking some targeted questions.

Leave a comment below to get in on the conversation.

Thank you.

Scott

Scott Baldwin is a certified corporate director (ICD.D) and co-founder of DirectorPrep.com – an online hub with hundreds of guideline questions and resources to help prepare for your next board meeting.

Share Your Insight:  What ideas to you have to ensure a board’s CEO succession planning is people-focused?