Companies must make succession planning an ongoing process
Good corporate governance in a company includes succession planning as a vital element. Organisations that can envisage continuity of business in times of exigencies such as unexpected departures of key people are possibly following best practices. The realisation must dawn on companies to make succession planning as an ongoing process and not an adhoc event. It can serve twin purposes of maintaining continuity in leadership and developing knowledge capital for the future. Board and the CEO's Role A company's Chief Executive Officer (CEO) must possess traits like insight, courage, persistence and a vision for driving the organisation towards achieving specific goals. A meaningful contribution would be gauged by the satisfaction of various stakeholders. This shows a clear correlation between the quality of a CEO and his/her leadership on the one hand, and the company's performance on the other. Succession planning can be facilitated if adequate arrangements are especially made for executive-level positions by the CEO. It is imperative that the board places faith in the CEO & his team's ability to manage an effective succession planning process for other key executive roles. Currently, many boards monitor succession planning for up to the top 10 positions in the companies. As part of the process, they give challenging assignments or new roles to the promising executives and also make sure that they gain exposure to the non-executive directors. There is a need for boards to play an active role to ensure the development of a cohesive team at the top that can drive success for years to come. Some proactive steps that the board of directors can take for CEO succession planning include development of the CEO's profile with specifications and requirements for the position that is in line with the strategy of the company, establishing a frank dialogue with members of the management through periodic sessions to assist in establishing the necessary qualities required for CEO succession. In addition, the board must conduct its own independent assessment of the progress and readiness of the potential CEO succession candidates, by investing time both inside and outside the boardroom with their organisation's high potential individuals. For this, the board should not shy away from seeking external expertise and advice in executive talent assessment and benchmarking against outside talent and peers. The fruition of succession planning entails cooperation between the board and the CEO. For this, consultation with the existing CEO by board members is a must since he enjoys supreme knowledge about the company. However, best practice suggests that the board of directors should retain the ultimate authority to lead the process. While the CEO must help the board formulate the future CEO skills and experience profile and also keep the board informed of his/her plans with regard to retirement/tenure to ensure a smooth transition process. The CEO must have explicit responsibility for the early identification and grooming of potential internal successors; ensure that the company is developing succession-ready executives for other positons; serve as a counsel and report to the board of directors on above-mentioned matters. The executive team should support the CEO to manage executive talent across the company, by selecting different set of leaders with potential for CEO or top functional roles, and then combining an analysis of their historical development trajectory with their current performance and likely future potential, for presentation to the board. Of most importance is the role of the Human Resources Officer, who should think about the development plans for potential internal candidates, assess individuals based on the future requirements of the business, and translate requirements into specific developmental opportunities for them. Strategic Planning and Avoiding Ninth-Hour Selection Many businesses, particularly those run by founders, defer succession planning for the ninth hour. This can lead to a crisis, which may cause the organisation to fail. This emphasises the need to give succession planning immediate attention which should make sure that both the board and the CEO start the process as soon as the new CEO is appointed The estimated timeframe for the succession planning process can range between three to five years. Also, the tenure of the current CEO should be given due consideration. Grooming potential successors Development of internal candidates can play a pivotal role for ensuring a flow of executive talent to support operational and strategic objectives of the organisation. This is because the candidates possess knowledge of the internal affairs, strategy, challenges for development, existing culture and relationships within the organisation. This can enable quicker metamorphosis after the former CEO's departure. However, the preference for internal candidates should be balanced with a willingness to look beyond as well. It is an established fact that even successful organisations compare their internal leadership candidates against their peers in other companies. Approach to Succession Planning The board must schedule a meeting for reviewing all relevant information related to the successor. It should encourage questions and input from the entire board, and assure that the most skilled and experienced board members will hold individual interviews with the finalists. During evaluation of the final candidates, a multi-interview approach exploring the strength of each candidate in relation to strategic imperatives, the critical CEO success factors, and the basic behavioural requirements must be assessed. Besides, the board should hold post-interview debriefing sessions to review their insights and perceptions of each candidate and build a consensus before the final decision is made on selecting the CEO successor. The board should elaborate a transition, and mentoring programme to help the new CEO succeed, which may include key components like establishing the new CEO's relationships with key stakeholders and providing insights on them and designing the first month, the first six months, and the first 12 months of expectations and activities for the new CEO. Additionally, mentoring and assistance by the Chairman periodically can help in establishing a communication pattern consistent with the board's expectations. Only having a well-structured and consistent approach towards CEO succession planning can assure smooth transition within a company and its sustainable operations. Boris Janjalia is the Corporate Governance Officer at ECA Corporate Governance Program, International Finance Corporation (IFC)/the World Bank Group. He has worked with IFC since 2007, advising banks and companies in Europe and Central Asia, and Africa on corporate governance.