Recent – and very public – corporate developments have made plain that the days of leisurely consulting the old boys’ network to choose a new chief executive officer (CEO) have gone.
The abrupt departure of ITV chief executive Charles Allen and the retirement wranglings of Lord Browne, BP’s CEO, have shown that succession issues can be foisted upon an unwary board with alarming speed and under a public spotlight of ferocious intensity.
And don’t be fooled into thinking this is just something that happens to someone else. Recent figures from the Booz Allen Hamilton Chief Executive Succession Survey 2005 showed that 15.3% of chief executives at the world’s largest 2,500 public companies left office in 2005 – a 4.1% increase on 2004 and 70% higher than 10 years before.
The number of chief executives dismissed for underperformance has quadrupled in the past 10 years, the research revealed.
Richard Phelps, partner at Saratoga, the human capital arm of consultancy PricewaterhouseCoopers, said getting good succession plans in place was key, as stakeholders are demanding more and more robust evidence of how well ‘future proofed’ a company is.
“Stakeholders want to see that measures and systems are in place so it is clear you have a high chance of getting the right person for the job,” he said.
Andy Rogerson, UK head of talent at HR consultancy Hudson, said that being without an effective succession plan could be the difference between staying on top and sudden obscurity.
“Like a football team, you need to make sure you have good people on the bench – each role needs to be covered by a decent second choice,” he said. “Organisations with poor succession planning can achieve a lot but are vulnerable to quick collapse when they lose one or two key people.”
Phelps warned that succession planning doesn’t mean companies should publicly announce who is in the pipeline to take over.
“There is an issue with saying ‘we have three people that are candidates in the next five years’ as the environment changes and the competition may come and take them away,” he said. “What you want is to be able to say ‘these are the key people’ instead you are saying ‘these are the key activities when it comes to preparing a replacement’.”
Rogerson said the departure of ITV’s Allen was a good example of poor planning. Allen stood down suddenly two weeks ago, claiming he could no longer “take bullets” on behalf of the company.
ITV has temporarily installed its finance director in the role and has appointed a headhunter to start looking for a replacement.
“You have to be ready on a constant basis each role should have an heir apparent,” Rogerson said. “The business shouldn’t start looking when the vacancy arises.”
He also said companies should look beyond the traditional pool of talent for replacements at the top, with skills relevant to the future of the company more important than a background in the industry.
Alongside the question of who is next, you have to work out when is best for a CEO to step down. This is where robust succession planning can come into its own, according to Phelps.
“CEOs should go at a stage when the organisation can continue to grow. You need to ask: when can they leave a sustainable organisation behind? Very often, people don’t get this right,” he said.
“What is important and lessens risk is having objectives and planning in place. Then when you get to the stage of a senior person leaving, there has been data and planning in place for years. This way, the handover can happen in a more predictable manner.”
This means examining your CEO’s position, even if they are proving very successful, according to Rogerson. “Stuart Rose clearly is great at managing change, but once Marks and Spencer is back on top, is he the right person to keep the retailer there?” he said.
“At Royal Bank of Scotland, Sir Fred Goodwin has an aggressive acquisitions strategy, and that’s what he is good at. But when the time comes to consolidate and ensure the acquisitions come together, that is likely to require a softer skillset.”
Calls to quit
But Wendy Hirsh, principal associate at the Institute for Employment Studies, warned against bowing too easily to calls from financial institutions and the media for a CEO’s head.
“These institutions have a terribly primitive view of CEO performance. You have to look at whether poor results are down to bad misjudgement [on the part of the CEO] or if there is something going on in the market or plans are working their way through,” she said. “We are seeing more changes than is healthy.”
Why have a succession plan?
- Improved job filling for key positions through broader candidate search, and faster decisions.
- Helps the active development of longer-term successors by ensuring their careers progress, and can engineer a range of work experiences they need for the future.
- Audit the ‘talent pool’ of the organisation and influence resourcing and development strategies.
- Foster a corporate culture by developing a group of people who are seen as a ‘corporate resource’ and who share key skills, experiences and values seen as important to the future of the organisation.
Source: Institute for Employment Studies