CEO turnover continues to make headlines, not only for the specifics of individual departures, but also for the record number of organizations who’ve changed leaders in the last 18-24 months. Whatever the circumstances, unplanned CEO departures are painful on many levels—disruptive to the organization, negative press for the brand, decreased momentum, etc. They’re also expensive. Lost stock and organizational performance on the heels of an unplanned CEO departure costs organizations more than $135MM, according to a study published in the International Journal of Financial Research.
Many of the board members I’ve spoken to recently worry about securing a ready supply of the right talent to lead their organizations today and over the long haul. At the same time, I’ve been startled by how few boards have solid succession plans in place for their top leaders. In 2016, Professors Robert Hooijberg and Nancy Lane of IMD found that 58% of boards don’t have succession plans. It’s as if planning for departure is somehow inviting turnover or perhaps, being disloyal to their leaders.
Succession plans are triggered when something happens with a person or in the business. That may be what makes it uncomfortable to discuss: few enjoy that kind of surprise. Yet, a good succession plan mitigates the impact of those events. Done well, succession plans also inform leadership development and support overall talent management. So how do board members ensure succession planning is not a dirty word for their organizations?
1. Address both strategic and operating needs.
While succession planning is a strategic activity, it’s not solely about strategy. Consider what’s needed to manage daily activities: what capabilities are most needed to keep the lights on? Without those capabilities, in sufficient quantity, there’s no future, either.
Then, identify the capabilities or competencies most critical for achieving the business vision in the desired time frame. That’s the strategic, longer-term view. And that’s an area where board members are particularly well placed to contribute. Tap into their external perspective to understand the trends most affecting the future environment for the business. As boards develop the profile for your next CEO, link those elements of strategy and operations to be sure the next CEO has the skills to both manage today’s business and prepare it for the future.
3. Look beyond the top job.
While the board’s focus in succession planning is usually on the top job, that is not the only critical role in the organization. Identify the specialized skills or expertise that, if lost, could be devastating. Those skills and expertise can exist at any level of the organization. Then, insist that those key roles are addressed in the company’s succession plan, which the board will review, at least annually. Ideally, boards partner with the current CEO to get to know key talent well beyond the executive team.
4. Create your own pipeline.
What if a person holding a key role wins the lottery? What will you do, right then? Most CEOs or Board members I work with understand that aspect of a succession plan: actions to fill the role immediately in the event of a departure. Less understood is the use of succession planning to assure you have the right candidates—and a ready supply of talent—to take on key roles later. That’s where succession planning informs the talent management strategy. Boards can play an important role in ensuring that both succession and talent development plans include specific actions to prepare current talent to take on the top jobs.
In fact, I’d argue that board members should take a more active role in creating the internal pipeline—and that’s not overstepping their responsibility for succession. For example, boards should require an annual review of the top leaders throughout the organization and seek to understand what’s being done to develop that talent. Between reviews, and with the support of the CEO, get to know prospective candidates for all executive roles, perhaps by inviting them to participate in a Board dinner or lunch. That gives board members the chance to hear from senior leaders about their challenges and successes in a transparent, less formal way. Doing so, the board becomes familiar with rising talent with whom they might otherwise not interact in board meetings.
Perhaps most importantly, a meaningful succession plan doesn’t sit on a shelf gathering dust. It must be a living, breathing document that’s brought to life by the active participation of the board. Don’t wait for a lottery number to be called to figure out what you’ll do when your CEO—or the people filling those key roles—moves on.