August 2010 Dr John Sullivan www.ere.net
avoiding hiring the wrong CEO for your business is up to your board of directors
BIR Solutions: This is an excellent article and although not focussed so much on the business owner manager market (it is more focussed on publicly listed companies and major corportes), it raises a number of valid questions – either for business owner managers to consider for their business – or, their investment decisions with their surplus or superannuation funds:
- How do Australian Boards of publicly listed companies Do Australian Boards stack up? This would be a good question for shareholders to ask when considering how pro-active our Boards are. From recent CEO departures, the answer would seem to vary – some Boards seem to take an age to find a replacement whilst others seem to be on the front foot – and, as the article suggests, shareholders tend to vote with their $.
- What can you learn for your business and its succession plan? Are there some low cost/quick fix things you can have availalbe (and documented) to make sure that in the event of your sudden departure, your business does not fall over. This is particularly relevant in the event of death or severe or crippling illness and your awsner to this question is relevant to your loved ones who remain to sort things out and keep things going.
- Like most good things, succession planning (either sudden or planned) requires proper planning and communication. It requires business owner managers to work ‘on their business’ not just ‘in their business’.
BIR Solutions can help your business avoid the worst of your CEO’s unexpected departure.
Most organizations do a weak job at succession planning, but as recent events highlight, Hewlett-Packard deserves some sort of award for completely blowing it! While the entire story behind the departure of CEO Mark Hurd has yet to be uncovered, it is clear the issues leading up to it were a complete surprise to the board and that no succession plan is in place. Within five days of Hurd s separation, HP had lost nearly $11 billion in market value and become the corporate punching bag for reacting stupidly.
Lots of factors can take down a CEO unexpectedly, and major corporations have a fiduciary responsibility to shareholders to have a plan in place. While BP won t be on anyone s list for excellence in corporate management, even it had a well-groomed and prepared successor in place for Tony Hayward. Based on my experience and observations over the years, I ve fashioned the following checklist to assess the success/failure of changes in senior leadership and the subsequent checklist to assess the design of succession planning.
Assessing a CEO’s Release and Replacement
- Was a succession plan followed? Organizations may need to replace a CEO suddenly for a variety of reasons including illness (Apple), lack of confidence (GM), arrest (Stanford Financial) and accidents (Chevron); it is simply reckless not to have a succession plan in place. HP has a well-documented recent history of failing to prepare for succession, most notably the painful and public departure of CEO Carly Fiorina.
- Did the stock price improve following the change? There is no better indication of successful succession then having shareholders affirm the decision with their wallets. Unfortunately, HP gets a failing grade here as well because HP has lost more than 10% of its market value following news of Hurd s separation and absence of a succession plan.
- Were strategic partners and major customers publicly supportive? Managing the reactions of major customers and partners is a critical success factor. HP deserves a clear zero here because Larry Ellison, CEO of Oracle, went so far as to publicly lambast HP s decision in a public letter to the New York Times.
- Was a permanent replacement designated immediately? The purpose of the succession plan is to be able to designate a permanent replacement within a week. Obviously, without a succession plan HP will not be naming a permanent replacement anytime soon. Yet another zero!
- Was a recruiting team/plan pre-designated? Being prepared is better than being forced to react, but being prepared to react is better than no preparation at all. HP earns another zero with regard to this factor because the board had no protocol in place prior to Hurd s departure. It had to hurriedly put together an ad-hoc recruiting team of board members to begin the search and select a search partner. Having a pre-designated team and executive search partner charged with continuously monitoring potential replacements could have shortened the cycle immensely.
- Did the press coverage cease quickly? Well-planned and executed CEO successions generate little press compared to poorly executed changes. Based on the current tone in the press, it s clear journalists feel there is more to this story, and will continue digging for weeks/months until more details emerge and a replacement is hired.
- Has employee morale been affected? Following any dramatic change in senior leadership, organizations need to reassure employees and keep them moving forward. While HP has communicated with employees, it s still unclear whether the communication efforts offered enough to prevent distractions in the workplace and support a sustained focus on customer, operational, and innovation needs.
Of the seven factors highlighted above, HP failed with regard to six of them; number seven is wait and see. By all accounts, HP has demonstrated failure, and other organizations can/should learn from its mistakes.
Top 25 Design Features of a World-Class Succession Plan (a Checklist)
If you want to avoid the common design errors and omissions that many firms make, ensure your process includes the most important features, including:
- Continuous process effective succession planning is integrated into all normal business planning and reporting processes and has as its primary goal ensuring that the organization has access to the right people to step into the right role at the right time.
- Written great succession plans aren t hidden in PowerPoint presentations or buried in enterprise reports; they are stand-alone, documented plans distributed periodically to everyone the plan touches.
- Clear goals and metrics like all good plans, succession plans are governed by specific, measurable, appropriate, realistic, and timely goals for which measures of success have been predetermined.
- Ensure supply succession planning is all about mitigating the impacts of a vacancy by ensuring that the organization has access to talent capable of stepping in/up as a need arises. Great efforts coordinate with workforce planning to model the type of talent, amount of talent and location of talent needs. Leveraging the forecast, great succession plans build supply chains of internal and external candidates to map supply to worst case demand.
- Broad focus on increasing movement world-class succession plans are not static plans; they are operational plans calling for the proactive movement of resources through stretch project assignments, lateral transfers, and job rotations and promotions to develop organizational bench strength.
- Proactive job movement rather than waiting for key development and assessment positions to open up naturally through retirements, reorganizations, or turnover, a proactive plan creates openings by reassigning incumbents.
- Supports jumping most succession plans are silly in that they document only obvious lateral and horizontal candidates. The best plans identify the non-obvious candidates and individuals to jump one or more levels, to new job families, and to unrelated departments.
- Personalized treatment rather than viewing only the individual as the flexible resource, assignments called for by the succession plan are tailored to allow for better assessment and development of up-and-coming talent. Assignments are selected by looking beyond job requirements to ensure that talent is placed with the right manager, right motivators, at the right time, and with the right team, etc. Every person on a succession plan should have a written, individualized development, challenge, and learning plan.
- Plan transparency world-class succession plans are public, meaning that those on and off the plan can review it and challenge reasoning for inclusion/occlusion.
- Supports retention goals transparency around succession planning can motivate some resources to stay, while frustrating others and encouraging them to leave. World-class succession planning efforts coordinate with retention programs to ensure those currently on the plan and those who may enter the plan soon are motivated to stay with the organization.
- Owned by managers succession management should be integrated into other core business planning processes and routinely championed by senior leaders so that all managers take ownership of it as a key business activity. HR must facilitate the process by providing infrastructure, removing barriers, and holding parties accountable (including the program manager).
- Key and mission-critical focused most succession plans focus on the leadership tier of an organization. World-class programs look beyond the top of the organization at all key and mission-critical roles. The goal, have at least one backfill (someone prepared to step in immediately) for all keys roles to mitigate the impact of a sudden and unplanned vacancy.
- Integrated rather than operating in isolation, the succession plan is developed and executed in tandem with leadership development, executive search, retention, internal redeployment, and strategic planning activities.
- Articulated business case the foundation for any succession plan is a clear and compelling business case, one that outlines to executives and managers the dollar impact on revenue and profit of planning for effective succession, i.e. mitigating risk of vacancy.
Elements Related to Plan Coverage
- Multi-source selection because identifying the right high-potential individuals is critical for success, rather than relying exclusively on managers to nominate those to be included in the plan, multiple sources are used to find hidden talent, increase diversity, and decrease the impact of individual biases.
- Business-strategy aligned Most succession plans focus on individuals who are visible, versus roles that are essential relative to the current business priorities. In addition to focusing on key and mission-critical roles, the succession plan should focus on near term succession planning for roles relative to near-term business strategy.
- External consideration the focus of world-class succession planning is ensuring access to top talent in key roles. It isn t probable that the best talent for a role will always come from inside the organization, nor is it likely that an organization will have the development wherewithal to produce enough volume of successors. For key roles on the succession plan, the organization should identify and track externally suitable talent. Doing so will help motivate internal talent to remain competitive skill/knowledge-wise with external talent and enable third party search partners, if used to proactively source.
- Supports diversity initiatives most succession plans underperform when it comes to selecting international and diverse employees. The best plans take proactive steps to ensure that these individuals are represented in the assessment slate for plan positions.
- Periodic housekeeping selection for inclusion on the succession plan should not be a lifetime entitlement. Life changes. Roles that were once highly important may decline in relevance, and individuals who were once growing rapidly may plateau. The best plans see turnover of 20% or more in plan incumbents.
Elements Related to Plan Administration
- Strong communications the succession plan must include a process for effectively communicating to employees, plan participants, and shareholders. Communications should how high-potentials are identified and why movement is necessary.
- Rewards for effectiveness managers should be rewarded for accuracy in identifying high-potentials and for success in developing plan participants, i.e. periodically releasing and not hoarding talent on the plan.
- Employee input the most effective plans involve the individuals who are most likely to be part of the plan both in plan design and high-potential identification. There should also be an avenue to complain or appeal if an employee feels that they have been treated unfairly or that a promotion was inappropriate.
- Use of technology crafting a living succession plan that goes beyond mapping obvious moves among senior leaders requires collaboration, and collaboration in large complex environments requires technology. World-class succession planning programs aggressively leverage technology to profile talent, manage development project deployment, and model resource movement.
- Data-based decision making important succession planning decisions (who to include, how to develop, where to move) must be primarily based on data rather than emotion or intuition.
- Periodically audited succession plans should be audited every two years, and failure analysis conducted following every succession movement that produces unsatisfactory results.
Executive tenure is declining, and events that CEOs once survived now take down their career. When volatility increases in any system, there is a need for more robust planning and risk mitigation. Unfortunately, most succession planning processes and the plans they produce are poorly designed, limiting their effectiveness. I urge you to use this checklist to assess your efforts, aim higher, and expect more.