January 10, 2020
Transitions in the C-suite are critical moments in an organization’s trajectory. The disproportionate power that C-suite executives have over the direction and operations of a business often means succession and disruption go hand in hand. A smooth transition has the potential to sustain the confidence of investors, ecosystem partners, customers, and employees, while a rocky one can derail momentum for years to come.
Unlike CEO succession, which is managed by the board of directors, C-suite succession is led internally and typically lacks consistent methods and data to predict the next leader, making the transition even more risky for the organization.
The best asset to increase the probability of a smooth transition is advanced planning. Successful transitions are grounded in a comprehensive succession plan, which integrates the organizational strategy, growth objectives, and transformation goals of the business with the desired profile of a new leader. The caveat is that developing such a plan and securing the buy-in of key stakeholders is a three- to five-year process, longer than many companies plan for, despite the obvious benefits.
While an unexpected succession event with a shortened time frame will still result in the hiring of a new leader on paper, the risk of misalignment between the new leader and the organization poses significant risk to the operations and the bottom line. The goal of succession planning is to mitigate that risk.
While developing a comprehensive succession strategy for the C-suite can be a complex process, it is generally composed of four discrete milestones:
Determining the organizational context. Succession planning ultimately seeks to answer one fundamental question: What leadership does the organization need to ensure its future success? The journey begins with the organization itself. A comprehensive succession strategy is one that projects where the company is headed in the next five to 10 years and then uses that data to determine what type of leadership is needed to execute against that vision. To that end, strategic goals, market trends, blind spots of previous or current leadership, and other variables impacting performance must be acknowledged and considered.
However, a senior team that is fundamentally aligned on an organization’s five-year strategic plan is the exception rather than the rule. As such, addressing these differing perspectives and bringing the senior team into alignment is a necessary precursor for accelerating the development of a success profile that outlines the key leadership requirements of the potential successor.
Identifying and assessing talent pools. A common question brought up with respect to a talent succession pipeline concerns the merits of tapping into internal or external candidate pools, with both options providing unique benefits. The strength of internal candidates lies in their cultural alignment, institutional knowledge, and potential reduction in disruption to ongoing business operations. Furthermore, if identified far enough in advance, organizations can develop the needed capabilities in high-potential internal candidates. External candidates, on the other hand, provide an outside-in perspective that may be required if the organization is going through a fundamental shift in strategy.
When both pipelines are filled in unison, the organization can compare internal and external talent against each other. This helps ensure that identified high-potential internal talent has the necessary skills and capabilities compared to the external talent market and provides a balanced view of investments required to make the leader successful.
Determining the roles and responsibilities of key stakeholder groups. The hallmark of a smooth transition is the integration and alignment of all key stakeholder groups. Depending on the position being vacated, the CEO and chief human resources officer, with perhaps the board’s succession subcommittee, should take responsibility for various portions of the succession planning process, up to and including providing support for the new leader’s transition into the organization.
Having each of these respective stakeholder groups aligned on their individual responsibilities during the earliest stages of succession planning greatly increases the chances that the right candidate is accurately placed into the role and that his or her transition into the organization is relatively seamless.
Providing transition support. By their very nature, transitions are rocky at best. Done quickly, the uncertainties and ambiguities only become magnified. But when executed in a well-planned and thoughtful manner, the new executive’s transition is likely to be a success.
Designing a process to manage senior leadership transitions sets the new leader up for success, engages the leadership team in supporting the new leader, and strengthens the external position of the organization, thereby stabilizing shareholder value during a period of change. In addition, identifying and addressing the hurdles a new leader will face can minimize growing pains, mitigate clashes with the prevailing culture, and define a support system for the newly appointed executive independent of formal channels. And lastly, by connecting with members of the investment community, the leader can reduce the market’s anxiety about how the most urgent business issues that affect company performance will be tackled.