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The Growing Interest in a Strong Succession Planning Program

Businesses that don’t take productive steps to plan for future talent needs at all levels will face certain disruptions—even disasters—when key employees retire or are lured away by competitors. So because of the importance of succession planning, Leader’s Edge asked William J. Rothwell, author of the most authoritative book on the subject, to talk about the latest trends and best practices in succession planning.

Why have so many companies begun to institute succession planning into their employee/management development initiatives?

Even though succession planning makes good sense, there are two major reasons why succession planning has surged to the forefront of attention in many quarters.

The first reason is concern about terrorism. When the Trade Center Towers collapsed, 172 corporate vice presidents lost their lives. There is concern that terrorists could obtain nuclear, biological or chemical weapons and take out New York City, Washington, or some other major city such as London. If that happens, and apart from obvious humanitarian concerns about loss of life, there is also concern that many multinational companies could lose their corporate or regional headquarters. And the loss of a city like New York could have a global impact on financial markets. Of concern is whether these companies could survive such a catastrophic loss of key talent all at once. For some multinational companies or other multinational entities, it just makes sense to set a goal to be able to have a new headquarters up and running in another city, and perhaps on another continent, within 24 hours. That is a goal that some multinationals have established. That means they need the people, information technology, logistical support, financial records—everything—ready to go.

The leaders of companies based in smaller cities should not fool themselves. The Oklahoma City bombing dramatized that no small community located anywhere should be considered immune from concerns about terrorism. And prudent planning will also take into account the possible impact of an increasing number of natural disasters such as hurricanes or tsunamis.

Demographic shifts are a second major reason for interest in succession planning. The USA, and indeed all nations that participated in World War II, experienced a post-World War II Baby Boom that was followed by a Baby Bust. That means the US, UK, Canada, Australia, France, Japan, Germany, Italy and other major industrialized nations are all experiencing the same demographic conditions. One result is that a large percentage of executives, managers and technical professionals of the US and these other major economic powers are now, or will soon be, eligible to retire. It could be that as high as 1 in 5 senior executives in the Fortune 500 are retirement-eligible now. The same problem affects government agencies at all levels, nonprofit organizations, and many small and family-owned businesses. Indeed, an examination of global aging trends shows a surging population among the aged globally, which is a major reason for concern about succession.

What questions should leaders consider when instituting a succession planning effort?

They are:

  1. What are the business needs that a succession program is intended to meet, and how can success be measured? 
  2. What kind of people do we have now, and what do they do? 
  3. How do we measure people's performance now? 
  4. What kind of people do we need in the future, and what will they do if our people talent aligns to our strategic objectives?
  5. How do we know whether individuals are ready to advance to higher levels of responsibility? 
  6. How do we pinpoint gaps between where people are now and what they need to know, do and be to achieve results at higher levels of responsibility? 
  7. How do we measure results against the needs established in the first step?

Is this a role for HR or does this belong with the top management team? What would HR's role be?

I have learned through hard experience in consulting with many companies, government agencies, and nonprofit organizations that the key process owners differ by economic sector.

In business (private sector), the CEO's role is critically important. He or she is the process owner. It is NOT HR, and if HR is made the process owner, it is a guaranteed formula for failure for the simple reason that the VP of HR does not have the authority—in the same way that the CEO or the Board has—to hold all senior executives accountable for developing talent.

That being said, the HR department does have a critical role to play. HR should be positioned to provide "people consulting help" to all senior executives and, indeed, for all those involved in talent development. HR should also be the repository of all records, the coordinator for all information-gathering, and the driver of talent development efforts.

In the government (public sector), the key driver and champion should not be the agency director, since he or she is often a political appointee. The driver should be the senior-most career officials. It is with them that the agency's institutional memory resides, and their backing of a succession effort is critical to success.

In a nonprofit, as you might expect because it is a mix of private and public sector thinking, you need both the organization's senior-most officials on board to drive the effort and the senior-most career officials as change champions, supporters and drivers.

What are the most important factors—the success and failure factors—in succession planning programs?

Whenever I enter an organization to begin work on succession, I have learned through experience to look for several things.

The first thing I want to know is what results the CEO wants from the succession effort and why he or she wants to do it. If the CEO is not the chief driver and champion, then I know the whole thing will fail.

The second thing I want to know is what discussions the senior executives have had among themselves on this topic. I look for that because I want to know if they have a shared vision for the effort.

The third thing I want to know is how the executive team is compensated. Is all or part of the executive bonus plan at risk for making—or not making—numbers in "talent development."

The fourth thing I want to know is what is the status of the HR department. Does it have the right kind of staffing, the right kind of technology and the right level of credibility in the organization to carry out its role in succession? (Often, I find that all or most of these elements are missing.)

The presence or absence of these things are, I have learned, key success issues.

It is worth emphasizing that succession programs are meant to overcome two key fallacies that are widely shared.

One is the so-called like me fallacy. That is the well-known selection bias that people prefer people like themselves. They do that not out of bias, malice or prejudice but out of the perception that people “like me” are good people because I am a good person. But even if a current leader is the ideal person for a given job, that does not mean that a clone of the incumbent will be the ideal person to hold the job at a future time when business conditions are quite different.

The other fallacy is the too common view that success at one level will guarantee success at higher levels of responsibility. That is just plain false. An excellent individual contributor does not make an excellent supervisor for the simple reason that the job requirements at higher levels—and the competencies needed to be successful at each level—are different. Nor does an excellent manager make an excellent executive. The jobs are different by a quantum leap. Hence, some way must be found to assess an individual’s ability to function effectively at higher levels. Current performance appraisals don't tell us that, though they are important for another reason: a fundamental principle of succession is that we don't want to promote people who are failing at their current level of responsibility.

Are there any legal issues associated with succession planning that companies need to be alert to?

There are many. And it all depends, of course, on what countries we are looking at. Laws, rules, regulations and national as well as corporate culture issues have roles to play in succession. A multinational company cannot just roll out a succession program from the corporate headquarters in the US, the EU or Japan and expect it to work globally for the simple reason that laws, rules and regulations differ by nation. So, too, do national culture and corporate culture.

To give you a simple answer, it is critical to look at age discrimination issues, race and gender discrimination issues and the nature of employment contracts (written or not) as critical considerations in any succession effort.

How should corporations look at succession planning? From an operational perspective or strategic perspective, or both?

From all of those perspectives, of course. But I am finding that best-practice firms are now doing an excellent job at the strategic level. But many of their problems stem from what I call the tactical level—that is, the role of the individual manager in grooming talent as a seamless part of also getting the work done on a daily basis. Ninety percent of all development occurs on the job and in the context of doing the work. The coaching, feedback and mentoring that people get on a daily basis—as well as the work assignments they are given—play critical roles in shaping them for the future.

If a company wanted to implement a succession planning program, how should it begin? Can you provide us with some key first steps? For instance, how important is communication of the program throughout the organization?

The first step is to get clear why the company wants to establish a succession program. I cannot stress the importance of that too much. In my book Effective Succession Planning, I list at least 11 possible goals that a succession program could meet. But no program can meet all 11 goals—and there are others, too—equally well. Priorities must be set, and that is the role of senior leadership.

Another thing I would say is that it depends on the preferences and desired expectations of the CEO: Why does he or she want to do it now? What problems does he or she see it solving, and what measurable results does he or she expect from it? These issues must be clarified first.

Now, I would say that I often encounter skeptical CEOs who ask first, “What is the ROI of succession programs?” But I believe that question is a false one. It assumes that the only goal of a succession program is to realize a financial return. And that is false. Apart from the fact that nobody knows the ROI of succession—although I have a talented doctoral student at Penn State right now studying this issue among Korean-owned multinational companies under my guidance—the real question should be, “What is the problem that the succession program is intended to solve?”

Here are some possible problems that a succession program could solve:

  1. Plan for the sudden, catastrophic loss of key people due to terrorism, kidnapping for ransom, or other unexpected losses
  2. Plan for a wave of possible retirements and the possible “domino effect” (series of promotions from within) that may follow such retirements 
  3. Reduce the time it takes to fill key positions 
  4. Preserve the loss of institutional memory that could result from the loss of many talented executives—as well as technical and professional people at all levels of the organization 
  5. Give focus to, and help set priorities and make investment decisions for, development efforts 
  6. Ensure that the organization’s workforce matches up to the demographics of the nation or groups that it serves

Of course, there are many other possible problems that a succession program could solve. But beware of what I call the “Christmas tree dilemma” of loading so many goals (ornaments) on the succession program that it collapses under its own weight and could never meet so many different, and sometimes conflicting, goals.

How sophisticated are programs today? What do you think of current efforts? What mistakes are they making?

I think that many organizations are making fine strides toward developing sophisticated, relatively objective succession programs to groom future talent. But that being said, I would say that there is still a long way to go. Many corporate leaders still talk about talent development but do not devote the time or resources to do it right. Nor do they reward achievements toward talent development in their companies in the same way that they reward “making today’s numbers.”

I am seeing several big mistakes being made.

One is that the senior team is too complacent about the issue. They don't devote enough time, money or effort to it. Nor do they drive talent development into daily actions. For that reason, I have been advising some of my clients—particularly in HR—to launch a career development program at the same time that they launch a succession program. A career program can force senior managers to do their jobs by developing talent and devoting time to coaching, mentoring, and other talent-building efforts.

William J. Rothwell, Ph.D., SPHR is author of Effective Succession Planning: Ensuring Leadership Continuity and Building Talent from Within (AMACOM). He is Professor-in-charge of Workforce Education and Development at Penn State University, University Park campus, and is also President of his own consulting company, Rothwell & Associates, Inc. For more information, visit: www.rothwell-associates.com.

For more information about Rothwell’s book and other AMA book titles, visit www.amanet.org/books.