Grooming from within

With the Labour conference a fading memory, Lia Nicholls looks at succession planning and asks what the business world can learn from one question still hanging in the air: who will win the race for 10 Downing Street?

If you choose to read the newspapers, you will find it impossible not to know something about the race for the leadership of the Labour party.

But if you think about it, what do you really know? Chancellor Gordon Brown will probably take over, but when? And what are his plans when he gets there? No-one is quite sure.

This just wouldn’t wash in business. Recent research into CEO succession by consultancy firm Booz Allen Hamilton concluded: “One of the critical issues on the table is succession planning and how to groom the next generation of leaders from within.”

Leaving succession planning too late can have serious consequences on a company’s value and its future capability to succeed.

The handover from Tony Blair to Gordon Brown before the next election is unclear and remains undecided. Major cracks are visible, with no assured leader as yet to guide the way. And businesses face the same threats without a planned and precise succession plan.

Mike Petrook, from the Chartered Management Institute, says that if the top people in business behaved in such a way, it could have devastating affects on company finances. “If there is not a clear [succession] path, it has the potential to create a problem,” he says.

This sentiment is echoed by Investors in People chief executive, Ruth Spellman. “If the Labour party had a share price it would be all over the place,” she says.

Collectively, organisations and individuals need to progress and know what they want to achieve, according to Andrew Griffiths from PSI Business Consultants. A plan that takes both into consideration will enable the organisation and the individual to achieve their goals, he explains.

A top-level succession in politics usually occurs every four years. The competency for it is lost and as the current leadership wranglings at the top of Labour show, you are likely to be bad at it when the time comes.

Gary Dibb, managing director of Harrogate Consulting Group, says the business approach of succession planning should be 365 days of the year, continually developing future candidates.

As it stands, Blair may be forced to hand over to Brown earlier than expected if his stated nationwide tour over the next year is a success. However, businesses should be aware that they do not always have the luxury of planning years in advance.

The Booz Allen CEO Succession 2003/2004 study revealed that 1% of CEO changes in Europe in 1995 were forced successions, as opposed to 5% in 2004. There is a growing haste to remove chief executives who fail to deliver strong results.

Dibb cited British Airways as an example of slick succession planning. The announcement of Sir Rod Eddington’s retirement at British Airways caused media speculation for only two days until Willy Walsh was the named replacement.

Similarly, the succession of Legal & General’s David Prosser was first revealed internally before being publicised.

Compare this to food service company Compass, whose shares plummeted by 11.4% after it warned of lower profits and announced the departure of its chief executive Mike Bailey. No-one has been put forward to replace him and the only information available is that he will depart ‘sometime during 2006’.

Succession planning is often something that is left until the last minute, but is an issue that requires ever-more thought. CEOs are more closely scrutinised by their shareholders and the media than ever in history.

However, with a bit of forward planning, it is quite possible for companies to end up as a perfect 10 rather than a situation that resembles Number 10.

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