A best practice for succession planning
Gretchen Morgenson noted in the New York Times (May 12th, 2013) how directors of public companies are having difficulties with two major areas of succession planning. She illustrated that directors commonly neglect chief executive succession planning, and they inadequately analyze company performance as it relates to managers’ pay. She quoted a principal from a corporate governments consulting firm, Paul Hodgson, who stated he believed chief executive succession planning was one of the critical tasks of a director–one in which most continue to fall short. He noted that hiring an outside CEO costs between three to five times the amount it does to promote an existing manager. Thus, an unnecessary external replacement can mean a board is failing in their fiduciary duty and wasting shareholders money. It should be noted that this does not mean that incompetent people should become chief executives, but it raises the question of whether or not a company is looking at its own high-potential, internal managers and developing those that have the potential to become a top leader in the company.
We find at CMA that companies of all sizes, small as well as Fortune 500, struggle with developing a viable succession plan and following through with the ones they have. They vary in their ability to implement any succession plans that are in place. We have found that insightful leaders understand the need for structured and systematic succession planning that identifies talented individuals within the company, commits resources to developing these individuals, and establishes a plan that allows for orderly transition to new leadership in the future with designated timelines.
Take a moment to think about your company, how it is doing with planning for the future, and whether or not there are plans in place to capitalize on the talent pool within the company to nurture and grow future leaders.
Written by: Henry J. Hummert, Ph.D.
