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Executive Succession Planning – Best Practices

EXECUTIVE SUCCESSION PLANNING - BEST PRACTICES AND TRENDS

Executive succession planning has become a key priority for organizations since their success heavily depends on “having the right leaders in the right roles at the right time”. It was found that effective succession planning lies in a disciplined approach that properly combines people-centric and data-driven elements of the process. Some best practices for the executive succession planning process includes institutionalizing the succession planning process, determining the key criteria for the executive’s success, and developing an effective onboarding and transition process.

#1: INSTITUTIONALIZING THE SUCCESSION PLANNING PROCESS

  • Based on a CEO succession study conducted by The Institute of Executive Development and The Rock Center for Corporate Governance and published by Forbes, most companies struggle with succession planning due to the lack of proactive and preparedness planning. This usually results in organizations using emergency candidates to fill important roles and operating in crisis mode. An effective approach in ensuring that companies are ready and well-prepared for future leaders is to institutionalize the executive succession planning process.
  • It has been observed that numerous organizations often default back to political or subjective succession based on various factors such as tenure, sponsorship, or likability. According to Deloitte Insights, leadership assessments conducted with various psychometrics usually end up taking a different turn with the involvement of subjectivity. Institutionalizing the executive succession planning process can avoid opinionated and subjective decisions.
  • Although the final selection of executive successors is generally made by the organization’s board, the development of successor candidates must include the current company executives and stakeholders. They are considered the best in developing potential successors because of their vast knowledge in their corresponding industries and roles.
  • To ensure data-driven and unbiased approach in the executive succession planning process, companies should consider forming a committee or task force that include the CEO of the company, HR executives, C-suite executives, and board members. Creating a detailed executive job profile that evaluates a potential successor is also a key step in institutionalizing the process.
  • Organizations can use a talent assessment partner in order to ensure objectivity, credibility, and validity through every step of the evaluation process. In evaluating potential candidates, it is also important to maintain the anonymity of the task force members.
  • According to the principle of Droste Group, a Michigan-based business management consultant, Steve Dion, the development of senior executives for the process of succession “should not be an HR initiative”. The HR department should be in charge of keeping the metrics for promotions and must serve as the company’s internal reference alone. It is also found that a more comprehensive strategy on succession planning can be developed when the task force has a non-executive in the team.

#2: DETERMINING THE KEY CRITERIA FOR THE EXECUTIVE’S SUCCESS

  • Hiring executives based on specific job criteria is a fundamental and vital aspect of effective succession planning process. However, it has been observed that numerous organizations are not prepared with an explicit set of criteria to determine their best performers and chose the right leaders. Companies need to define the required criteria for executives that include aspects such as abilities, skills, and experience.
  • In this approach, the use of talent assessment data can be extremely helpful. Companies should select the right kind of assessment that measures knowledge, skills, and cultural fit. The chosen talent assessment must conform to the guidelines set by the United States Equal Employment Opportunity Commission.
  • Talent assessments must be developed based on up-to-date research for measuring the necessary abilities and skills for the position.
  • The potential executive candidate’s performance standards must be clearly identified by the company. Organizations must ensure that all executive promotions and hires must be made based on the company’s goals and future success rather than placing a priority on seniority or just technical skills. Focus must also be laid on organizational fit in terms of executive positions and must add value to the mission of the company.
  • According to Global Investment Strategies, over-engineering the planning process by adopting complex assessments can be time-consuming and not always helpful, “unless done by a vastly experienced competent coach”. Most often, having simple assessment criteria can lead to an effective executive succession planning process. It is also essential to maintain transparency in the process of determining the criteria for executive positions along with the entire succession planning process.

#3: DEVELOPING AN EFFECTIVE ONBOARDING AND TRANSITION PROCESS

  • Organizations must invest in developing an effective onboarding and transition process for senior executives. Most companies believe that high-level executives do not require extensive onboarding but studies suggest that robust onboarding will help executives make a greater impact on the company’s success.
  • According to Droste Group’s principal, Steve Dion, effective succession planning must be linked with performance management and strategic business planning in a cyclical process. High-potential executives must be provided with full business exposure in their training and must be taught a series of “chess moves” that might be essential to build talent. It is also essential to develop the successors’ competence via formal instruction that is focused primarily on building capabilities.
  • Succession planning is found to be a long-term discipline and is often pushed behind because it does not always fit the cadence of the planning timeframes of most organizations. An effective strategy to ensure that the succession planning process supports long-term outcomes is to set short-term goals and proactively create leadership development for executive candidates. By developing short-term goals, companies will be able to create more depth and focus on executive talent.
  • According to Global Investment Strategies, it is essential for companies to invest in leadership development to enhance the management capabilities and leadership skills of potential executive successors. Investing in the development of their leadership abilities helps companies prepare their successors for heavy responsibilities and engagements.
  • According to an article published by Plante Moran, an effective onboarding process must be integrated with a plan that includes both long-term and short-term goals, along with appropriate timeframes and results. Successful companies are found to focus on developing a well-built leadership pipeline by creating professional development plans that are customized for executives and potential future leaders.

RESEARCH STRATEGY

To identify the best practices for the executive succession planning process, we began our search by looking through industry-specific reports and studies from websites such as Harvard Business Review and Hanover Research; media websites such as Forbes and Human Resources Today; case studies, reports, and articles published by leading companies from various industries such as Deloitte and Plante Moran. After an exhaustive search through these channels, we were able to identify some of the best practices used by organizations for effective executive succession planning. Each of the practices presented above has been determined as “best” based on the number of times the approach has been mentioned in research studies, reports, and industry articles.

Executive Succession Planning – Trends

The three emerging executive succession planning trends include a people-centric focused approach, talent management prioritization approach, and appointing new CEO from outside the company.

1. PEOPLE-CENTRIC FOCUSED APPROACH

  • According to a recent survey by Deloitte on hundreds of executives, CEOs, board members, functional executives, and HR leaders; the succession planning is most effective when it takes a “centered” approach focusing on people and maintaining objectivity and procedural discipline.
  • Additionally, an organization can make it an active part of its growth strategy by making it a signature feature of its corporate culture.
  • A “centered” approach executive succession planning is designed to involve the leaders managing the process and the successors who are being considered at the center. They are supported by processes that help decision-makers to maintain objectivity.
  • The approach makes use of people-centered design tools to enable organizations to consider an objective talent assessment criteria without the process being perceived as threatening to the leadership community.

2. TALENT MANAGEMENT PRIORITIZATION APPROACH

  • According to SHRM‘s survey on HR professionals, the senior leaders should learn the significance of cultivating a corporate culture that prioritizes talent management.
  • The approach suggests that HR professionals should build a business case for succession planning and guide business leaders to identify the competencies that future leaders will require succeeding. HR professionals can prepare a career development plan for high-potential employees through executives’ input and buy-ins.
  • SHRM advises to encourage the senior leaders to participate and get trained about the importance of cultivating a corporate culture that prioritizes talent management.
  • Companies should also establish a “success profile” page that details a list of capabilities and skills required by a successful leader.
  • Organizations should ask the current leaders to identify the capabilities and skills that would be required by future leaders to propel their teams to meet business goals.

3. APPOINTING NEW CEO FROM OUTSIDE THE COMPANY

  • Evidence supports that an outsider is probably the best choice for corporate boards to appoint a new CEO. This can be due to the evolution of board composition towards making boards more independent and less impeded by corporate politics.
  • Recent findings suggest that more firms are hiring an outsider CEO as part of their regular planned SOPs rather than being a reactive approach.
  • According to a recent report by Spencer Stuart, a higher percentage of the new CEOs (27%) were hired from outside rather than promoted from within their companies in 2017.
  • Additionally, nearly 31% of new CEOs were hired from the outside in 2017; following a three-year decline in external hires to about 10% lower in 2016).
  • The research suggests that CEO resigning due to pressure leads to about 42% of new CEO’s are promoted from within, while 58% are hired from outside the organization.
  • Some reasons for the recent reversal of the internally weighted trend may be attributed to factors like company strategy shifts requiring new and different leadership, activist investors, the #MeToo movement, digital disruption, or a great change of pace.

RESEARCH STRATEGY

To compile this report, we leveraged recent industry insights, market reports, media publications, and surveys to curate the emerging trends for the executive succession planning process in the US. We started our research by examining research studies of executive succession planning and its emerging trends. We studied a report by Deloitte to find recent trends being practiced by CEOs, board members, functional executives, and HR leaders focused on the people-centric approach. Another trend we identified from the 2018 SHRM Annual Conference & Exposition suggests that groups of HR professionals are increasingly adopting talent management prioritization approach. Lastly, the Boyden Industry Insights suggests that executive succession planning from outside the company is an increasing trend. Additionally, the trends were supported by statistical data from Spencer Stuart report. The main criteria we used to ascertain these trends is the recency and endorsement support by numerous CEOs, board members, functional executives, and HR leaders for the trends.

Executive Succession Planning Accountability – Best Practices

When looking to ensure accountability in the executive succession planning process, companies should focus on building a succession plan that is objective and transparent, while also fostering the belief that effective succession planning benefits everyone involved. Two specific best practices for ensuring accountability include: (1) clearly identifying the responsible parties; and (2) promoting a culture of succession within the company.

BEST PRACTICE #1: IDENTIFY THE RESPONSIBLE PARTIES

  • According to a recent study by Deloitte Insights, many leaders “had no idea who was ultimately accountable for succession planning in their organizations.” In situations where there is no clear accountability in leadership, the succession process may become less objective and more a matter of subjective opinion.
  • Individuals often do not engage in activities until “clear accountability has been assigned,” regardless of whether this activity is viewed as important. Identifying where accountability for succession falls within an organization may even be more important than who is responsible.
  • According to an article from the American Association of Executives (ASAE), the governing board should “own” the succession plan as a matter of organizational strategy and risk management.
  • By taking clear ownership of the succession plan, the board can build succession planning into its ongoing, regular agenda, which will help to allow progress to be monitored. Additionally, building succession planning into a board’s regular agenda also helps to “normalize” succession planning as part of an effective long-term organizational strategy.
  • At Apple, the Tim Cook, the current CEO of the company, recently noted that he is preparing as many people as he can to take over from him in the future. According to Cook, Apple’s board will then take over the responsibility and make the final decision at that point.
  • This is a good example of the board of a big company taking the responsibility in the executive succession planning process.

BEST PRACTICE #2: PROMOTE A COMPANY-WIDE CULTURE OF SUCCESSION

  • An impediment to accountability in succession planning is that identifying employees for possible succession can inspire fear among current executives, who may then have an incentive to undermine the planning process.
  • By facilitating an open discussion of talent management and succession planning as a matter of long-term strategy and organizational needs, companies can shift the focus away from the specific individuals involved. Further, formally aligning succession planning with a company’s overall business strategy encourages the belief that a succession plan is transparent and objective.
  • As a method of decreasing anxiety surrounding talent discussions, Microsoft weaved a “growth mindset” into its updated talent review and succession planning process, which the company calls “Talent Talks.” According to Kathleen Hogan, Microsoft’s Chief Human Resources Officer, the Talent Talks initiative is a way of increasing the accountability of leadership in developing company talent as one component of organization growth.
  • According to Deloitte Insights, it is also advantageous to have at least one senior executive advocating for succession planning. By promoting the link between succession planning and overall company success, these leaders will help to foster an “effective succession culture in the organization.”

RESEARCH STRATEGY

To identify best practices, we searched for highly reputable articles and case studies from industry consulting firms, such as Deloitte, that address accountability specifically, and preferably at the executive level. We also searched leading industry magazines, such as Forbes and Harvard Business Review, as well as business associations and leading non-profit institutions that address executive search and best practices for succession planning. This approach was successful in yielding information on best practices in general, but failed to produce studies on best practices for accountability only. We therefore distilled the answer provided from a qualitative analysis of these sources, with a focus on accountability as much as possible.

TDM

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