It's about looking at talent on multiple levels
Editor's note: Once a month, the Strategic Capability Network (SCNetwork) hosts a special seminar on a topic of interest to HR professionals and business leaders. Canadian HR Reporter covers these events for a special feature titled "Executive Series." The feature includes news coverage from one of our editors, plus commentary from SCNetwork's panel of thought leaders on strategic capability, leadership in action and organization effectiveness.
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Succession planning not just about CEO (Executive Series)
It's about looking at talent on multiple levels
By Liz Bernier
When it comes to succession planning, if the CEO role is the only one you’re focusing on, then here’s the bad news: You’re doing it wrong.
That was one point that David Gibbons and Paul Gryglewicz raised at a recent Strategic Capability Network event in Toronto.
“When we say CEO succession, we really mean looking at succession overall… (it’s) really about succession throughout the whole organization, so when everybody starts to move up, the backfilling (is) there,” said Gibbons, who is managing principal at Korn Ferry leadership and talent consulting in Vancouver.
What makes an effective succession plan centres largely on the amount of actual planning that goes into it — and the awareness and understanding of the talent you have, and the talent you need, on multiple levels in the organization.
“Succession, for those companies that do it right, (involves) a lot of work. They don’t start it tomorrow — they started it yesterday,” said Gryglewicz, managing partner at Global Governance Advisors in Toronto.
A common pitfall is only paying attention to the succession plan when it’s known someone is going to leave, said Gibbons.
“(But) succession is what we build upon in terms of the entire focus of our leadership pipeline, and so thinking about this, and moving an organization away from replacement planning by moving it into our overall talent strategy processes will help us have a clear view of our leadership pipeline,” he said.
“The key here is thinking more than just one CEO ahead. So it’s not replacement planning — we’re not just looking at who is successor for the CEO.”
One of the most complex factors in succession planning is the sheer number of disparate perspectives that need to be reconciled with one another, said Gryglewicz.
“Coming into a succession planning exercise and working with your board, you’re going to be experiencing nine different perspectives — maybe it’s a 12-person board with 12 different perspectives. Maybe management has another perspective… maybe we should think about the shareholders too, because they have a perspective too,” he said.
“Today, if you’re a publicly traded company, those shareholders get to vote on how you choose those individual directors. So, now, there’s thousands of individual perspectives.”
As a result, the spotlight has never been greater in terms of the degree of transparency around how a board operates and who that company picks as the leader, said Gryglewicz.
“There are different viewpoints coming into succession that exist in the marketplace,” he said. “In so much literature, there are oftentimes different viewpoints around who’s done succession planning the best or who’s had the most success.”
One example that’s often cited is Jack Welch — former CEO of General Electric — and his famous “horse race” for a CEO replacement.
Years in advance of when he was going to exit the organization, he identified three high-potential individuals he wanted to compete for the CEO role, said Gryglewicz.
“The reality is, and Jack Welch has admitted through time, that any one of those individuals could have actually been the next leader of General Electric because each one was such an overachiever and met all the targets.”
But there are detractors.
“On the flip side of the horse race is that sometimes it’s criticized because organizations fear an internal competition will lead to an unfortunate exit of high-potential talent,” said Gryglewicz.
But probably a much bigger issue is when there is no plan at all and the successor CEO is chosen hurriedly or by default.
“By putting succession into a reactionary phase, it’s a really probable case that you can have a costly interim period where your next best pick — who you may think is ready and the right person — doesn’t last very long. That doesn’t necessarily help the shareholder base or your stakeholders in the organization,” said Gryglewicz.
Challenges, best practices
There’s added pressure due to the fact that there is more pressure on succession planning than ever before, said Gibbons.
“There’s more external pressures on us, more regulatory oversights on us… from the research out there, we all know how costly it is,” he said.
“We know that if we get this wrong — we put the wrong people into our critical roles — it’s costly.”
So what gets in the way of organizations doing a great job? There are a few questions companies should examine, said Gibbons.
“Do we have the planning and the rigour in place within our organization or is it ‘That’s nice to have’ and we kind of push it aside?” he said.
“Are we taking the time to take this seriously throughout the organization — not just in the human resources divisions and departments, but within the whole organization?”
Another area to examine is whether there is the necessary alignment, said Gibbons, between the strategy of the organization — the business plan — and what the talent strategy needs to look like.
“Often, there’s a lot of misalignment around that.”
Another challenge is simply the fact humans are involved, he said.
“And we all know how that adds complexity. The different perspectives on the types of individuals who are going to be successful, the types of experiences that one needs to have to be successful in these roles — these all bundled together are what makes this hard.”
In terms of best practices, the gold standard today is not necessarily a board rubber-stamping a company’s job profile for a CEO, said Gryglewicz.
“It’s not an exercise of ‘We’ve met on it in the Q2 meeting that we have a succession plan and it’s in this binder’… It’s actually having the head of HR leading and partnering with the current CEO and the compensation committee to talk about ‘Where are you in your strategic plan today and what is a natural exit period for the CEO?’
“And having that conversation, and having the CEO prepared (for that)… that then starts to reinforce the organization design — the depth, the structure is meeting the current needs and the future needs of the organization,” he said.
In taking a deep-dive look at where the organization is going, a company may recognize its operating model doesn’t hold water anymore — there are going to be changes in the organization’s structure that are going to impact how the leadership will look and act in the future, he said.
“You may be looking for a CEO that needs to be a ‘fix-it’ CEO that’s not going to make friends when they join but they’re ready to make the hard decisions to clean up the organization,” said Gryglewicz.
“On the other hand, you may find that the organization is in a stable state… you just need a new leader for the organization.”
Having a strategic off-site meeting with the decision-makers is a good forum for the board to discuss different viewpoints around the organization design and the succession plan, he said.
“You can use one-on-one, confidential interviews to discuss with each board member that’s going to be participating on this — have a discussion with them around their viewpoints on what would make the new CEO successful, what are the key challenges they’ll be facing?” he said.
After hearing the viewpoints of those directors — and perhaps management as well — you need to synthesize those viewpoints into key themes that you’ve heard through that process, and bring that forward in a nice, tight summary for the board to do pre-reading in advance of that strategic off-site meeting, he said.
“That helps to make them aware of the different viewpoints that exist on that board in a very professional forum — that is not a lobbying forum. Where boards can become divided is when that sort of process is skipped and it’s just sort of a reaction to the moment, an emotional response.”
Is the real problem board effectiveness?
By Trish Maguire
It would it be reasonable to expect that a key role for a company’s board is to conscientiously execute a defined succession strategy for developing top talent.
But that may not necessarily be the reality. Even more alarming is the fact that one in three CEO successions fail, according to McKinsey & Company.
Having recently listened to David Gibbons and Paul Gryglewicz on CEO succession planning, I decided to take a deeper look into what appears to be a common inadequacy at many corporations.
Almost one-half of companies with revenue greater than $500 million have no meaningful CEO succession plan in place, according to the National Association of Corporate Directors. And only 20 per cent of HR executives are satisfied with their top-management succession processes, according to a Corporate Leadership Council (CLC) survey of 276 large companies last year.
Many expert articles can walk you through an effective and rigorous succession strategy to identify top talent and best-fit CEO candidates. However, I found less information or guidance on how a board can positively implement and operationalize effective talent management strategies.
Inevitably, I began to wonder if the perceived lack of CEO succession planning pinpoints a far greater problem: the strategic effectiveness of the CEO-board relationship. Could there be a systemic problem for some public companies in the dysfunctionality of the board itself?
I found a must-read article in the April 2013 Harvard Business Review: “What CEOs Really Think of their Boards” where CEOs reported “directors too often put self-interest and self-preservation ahead of shareholder interests.”
In this same article, William Donaldson, former SEC chairman and Aetna CEO, is quoted as asking, “What’s really going on in that boardroom?”
A critical component of the Sarbanes-Oxley requirements is boards need to regularly evaluate their overall performance. However, boards also need to assess individual board members.
So where and how are the analytics on the effectiveness and performance of the board and directors captured, and who should conduct them? And how robust and effective is the board’s self-evaluation process?
Kassy Corothers’ article “A focus on board performance” in the February 2015 edition of Corporate Governance highlights the need for boards to rethink and take a more proactive and flexible approach to revisiting and renewing board policies, along with an explicit focus on director performance.
There is also a revised 2013 paper from the Canadian Coalition for Good Governance (CCGG) that has developed and updated guidelines on “Building High-Performance Boards,” with advice on how boards can structure themselves and their policies to promote good governance practices. Interestingly, the focus is on governance and not necessarily on execution or measurable deliverables by the directors.
The reality is boards can make the biggest difference for success or disaster for any corporation. If boards fail to carry out best practice strategies for identifying the best-fit directors for their own team, how can any succession planning be meaningful and effective for the CEO role or top leadership succession planning?
Perhaps there is a greater opportunity in accelerating the capability of a number of boards to execute and operate effectively before questioning the effectiveness of CEO succession planning.
Trish Maguire is a commentator for SCNetwork on leadership in action and founding principal of Synergyx Solutions in Nobleton, Ont., focused on high-potential leadership development coaching. She has held senior leadership roles in HR and OD in education, manufacturing and entrepreneurial firms. She can be reached at [email protected]
Time to turn around ugly stats
By Edmond Mellina
On my way back to the office after SCNetwork’s event on CEO succession, I received an email from McKinsey Quarterly with an article on the same topic.
The piece started with an ugly statistic: “Two-thirds of U.S. public and private companies still admit that they have no formal CEO succession plan in place, according to a survey conducted by the National Association of Corporate Directors (NACD) last year.”
A CHRO recommended CEB’s research briefing titled “Succession Strategies for the New Work Environment.” She added: “The current work environment is changing too fast for traditional succession planning approaches to work effectively.”
Her comment points to a broader problem with succession management — not just CEO successions. Thirty-eight per cent of HR leaders and 36 per cent of senior leaders who responded in 2013 to CEB’s worldwide survey agreed elimination of current succession processes would not change the quality of successors.
Yet, 61 per cent of HR leaders indicated succession management was the top talent priority for their board of directors.
CEB found major leadership gaps all over the world — not just in the U.S. They explain the shocking statistics as follows:
• Our work environment is changing.
• Leadership is also changing.
• Current succession management practices, which were designed for the old world, have become highly ineffective.
CEB recommends replacing the traditional “pipeline approach” to succession management with a “portfolio approach.” I am assuming other experts in the field are advocating different solutions, all with their own merits.
Finding the right fix is obviously important. But another issue might be even more critical: Who should take the lead in reinventing succession management?
My mind goes back to SCNetwork’s event. Speaker David Gibbons talked about the importance of a strong partnership between current CEO, CHRO and head of the board of directors’ HR committee. I know from experience that unleashing the power of partnering is critical to succeed with change.
I don’t think it really matters who takes the lead in establishing the partnership — as long as someone does. If the CEO or head of the HR committee hasn’t already started the process, then the CHRO should most definitely seize the opportunity.
Extra profit growth
“On average, portfolio strategies are twice as impactful as pipeline strategies, leading to an extra two per cent growth in year-over-year revenue and profit,” said CEB.
I never get too excited about top-line growth but I love it when the bottom line is increasing. Two percentage points from one strategic initiative is not too shabby. From this perspective alone, reinventing succession management is a worthwhile undertaking.
But, there is also the increased scrutiny from the board of directors and the large number of leaders who are dissatisfied with the current approach.
It’s time to turn the statistics around. The CEO, CHRO and head of the HR committee should reach out to each other. In partnership, they can transform succession management for the new world.
Edmond Mellina is a commentator for SCNetwork on organizational effectiveness. He is the president of ORCHANGO, a Toronto-based learning and consulting firm that specializes in building the change capabilities of organizations while helping them execute strategic change. Edmond contributes monthly to the blog of HR People & Strategy. He is a judge for Canadian HR Reporter’s National HR Awards. Follow Edmond on Twitter @edmondmellina.
Who here can drive this bus?
By Morgan Smyth
Putting a new CEO in the driver’s seat of any organization is risky. This one individual has more impact on the employer’s success or failure than anyone else, so picking the right person is critical.
David Gibbons of Korn Ferry and Paul Gryglewicz of Global Governance Advisors describe a few ways to mitigate this risk. The first is to define the organization’s destination and its roadmap to get there. In other words, what is its five- to 10-year strategic plan? Having a clear plan in place before switching drivers certainly minimizes one of the unknowns in the CEO succession process.
Once the strategic plan is defined, the next step is to perform a needs analysis, defining the skills and talents required in the next CEO to make sure she aligns as close as possible with the plan.
Organizations can then set about finding suitable candidates. They can be found internally or externally and today, more organizations are implementing talent pipeline programs to identify high-potential employees and start grooming them as early as possible for leadership roles. This program typically extends well beyond the CEO and other C-level executives to include several management tiers.
Some include non-managerial candidates as well, conceivably spreading out to every employee. By doing so, they ensure the pipeline is adequately stocked with capable candidates who can comfortably fill any vacancies that may crop up — be they anticipated or precipitated.
These leadership development programs vary depending on the level at which the candidate currently resides. For example, a C-level executive is groomed quite differently than his immediate reports, and so on throughout the organization. Each person is trained to assume positions deemed to be immediately ahead of him as well as promotions into completely different departments and divisions. This is particularly important for those organizations that are geographically dispersed.
Having a leadership program gives an organization a common vocabulary for talking about what it requires in its leaders at all its various levels. It also establishes a consistent discipline for assessing leadership potential and actively managing the talent pipeline for the organization as a whole — thus managing succession for all key positions.
It is highly recommended this plan, including the strategic portion, be reviewed and recalibrated at least annually in order for it to keep pace with other variables such as industry trends, market dynamics, competition, technology, social media, regulatory changes, workforce diversity and transparency. As these change, so too must the strategic plan and, subsequently, the talents and skills of the leaders.
It could be there are no suitable candidates internally, particularly if an organization is in trouble and needs to make a significant change in its leadership platform or its strategic direction. The good news is there are plenty of capable candidates available, and they come with no history with the organization, thus no debts to repay and no baggage — a clean slate. This is useful for organizations where significant changes must be made to get the organization back on the road to success.
The potential not-so-good news with hiring outside talent is the candidates are relatively unknown and, therefore, are a higher risk.
It’s worthwhile keeping an eye on good external candidates though, even during the non-hiring phases, as they can serve as benchmarks for their internal counterparts. And, if the need should arise where no suitable internal candidates are immediately available, this external pool serves as a prime secondary source.
Organizations with formal CEO succession processes in place tend to be those that have made leadership development a priority. They take leadership and employee development seriously, baking it right into the cultural DNA. They speak it and they do it.
They know success hinges on having the right people in the right positions, all executing on the right strategy. They know the value of having qualified drivers in each position and they wisely invest to create the best.
Morgan Smyth is an SCNetwork thought leader and a change management consultant who launched his own IT services company which soared to Profit Magazine’s 50 Fastest Growing Companies. He is based in Toronto and can be reached at [email protected]