Weak Succession Planning Remains a Problem

by Parker Poe Adams & Bernstein LLP
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Back in January, I wrote that “few things are more important to a company’s success than identifying, hiring and retaining an effective CEO,” and yet many boards of directors pay scant attention to succession planning. (See this SCGG Article.) Now Stanford’s Rock Center for Corporate Governance and the Institute for Executive Development have issued their 2014 Report on Senior Executive Succession Planning and Talent Development, which emphasizes the ongoing severity of the issue.

Here are the Report’s key findings:

These are the Report’s general conclusions quoted verbatim from its Executive Summary. Obviously, they have greater or lesser applicability on a company-by-company basis, and may not apply at all in some cases, but they provide excellent food for thought:

  • Companies do not know who is next in line to fill senior executive positions.

  • Companies do not have an actionable process in place to select senior executives.

  • Companies plan for succession to “reduce risk” rather than to “find the best successors.”

  • Roles are not defined and often they are not followed.

  • Succession plans are not connected with coaching and internal talent development programs.

If any of these observations apply to your company, you should re-evaluate your succession planning efforts.

Here are my (updated since January) steps to shifting succession planning from perfunctory to substantive:

  • Educate the board of directors on its importance and the ways in which the current plan can be improved. This can be initiated through a one-on-one conversation with the chairman (if he or she is not also the CEO) or the lead independent director. The next step might be a discussion with all independent directors in executive session.
  • A director should be appointed to lead the effort in order to generate and maintain momentum.
  • The CEO should be asked to share his or her career progression or retirement plans and any information regarding the plans of other executives.
  • The CEO should play a key role in the succession planning process.
  • Any plan should be two-pronged to address both emergency succession and natural succession.
  • Develop detailed candidate profiles that address background, education, experience, fit and any other factors that the board deems important to facilitate the company’s long-term goals.
  • Consider engaging a recognized search firm now. This will give you time to bring them up to speed about your company. Depending on your circumstances, you may also want them to begin assembling a pool of external candidates for key positions before an actual need arises.
  • Review and compile a list of potential internal candidates. Even if there appears to be no logical internal successor, keep in mind that some individuals may develop over time into viable candidates. In addition, such persons can capably serve on an interim basis in the case of an emergency succession.
  • Update candidate profiles and external and internal candidate pools regularly (annually is recommended) to keep up with changes in the company.

It’s critically important that executive succession planning be done continuously and effectively to ensure the smoothest possible transition and most satisfactory outcome when that day inevitably arrives.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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