Succession Planning Is Essential: The Future is Threatened When No One is Ready to Succeed the CEO

Research indicates that 30-50% of organizations are unprepared for CEO succession. Poor preparation often ranges from doing no succession planning at all to having no one ready to step up.

While most leaders and investors feel succession planning is critical, many are too busy to give it the priority it deserves. Succession planning is essential to perpetuating business success, maintaining competitive advantage and retaining good people. Poor to no succession planning can lead to paralysis in choosing the next CEO or president, leadership turnover, slower business growth or even eventual sale of the company. Mid-sized and smaller organizations are often the least prepared for CEO succession.

The worst succession step anyone can take is to take no succession planning steps at all. At a minimum, we advocate for robust succession scenario discussions, especially amongst existing leaders, owners and boards, as to who can take over under various circumstances. Also, define organization leadership gaps, missing skill sets, emerging leaders and greatest risks. In a way, it is essentially investment insurance.

Succession planning is often hard work, yet it gives investors, employees and emerging leaders the peace of mind that top leadership is sustainable. It gives emerging leaders hope, too, for potential career advancement and a reason to stay.

ACTION STEPS FOR LEADERS, BOARDS AND INVESTORS

Assess your succession timelines. If succession is urgent or near term, succession planning steps need to be taken immediately. Is an interim CEO needed? Is there a clear insider or outsider ready now? If succession is likely down the road, define clear planning steps, a timeline and the assessment of potential successors. Importantly, task someone with owning succession planning.

DEFINE KEY ATTRIBUTES OF THE NEXT LEADER

Don’t focus on a clone of the current CEO as the next leader. Define the attributes critical in the next CEO. What does the company need in the next 3-7 years? Is it a growth builder, an operational manager, someone to attract big customers or investors, or is it someone good at acquisitions? No candidate is a “10” in every category, so focus on the most critical skills.

BE REALISTIC WHEN ASSESSING INTERNAL VS. EXTERNAL CANDIDATES

Given likely succession scenarios, is there a clear, “ready now” successor internally, or does someone need more development time? Be realistic and objective in assessing potential candidates. Do you need to look externally? Get to know top leadership talent across your industry. Observe outsiders constantly.

DEVELOP LEADERS CONTINUOUSLY

If no one is ready today but there are emerging successors, engage in their development deliberately. Assess strengths and weaknesses periodically, identify development gaps, add to their responsibilities and offer coaching. If someone is not selected as the next CEO, the organization still benefits from effective leadership development. Good leaders assemble strong teams, execute on both strategy and operating performance, and communicate effectively.

THE BOTTOM LINE

Succession poses some of the greatest risks to an organization, if not the greatest risks. When done well, succession planning allows an organization to move confidently into the future; when done poorly, it puts long-term investment viability at risk. Research shows that organizations that excel at succession planning don’t just survive – they grow in value.

Frank Marsteller is executive succession advisor at Diamond Rock Advisors. He has been advising top leaders, boards and investors for more than 30 years on leaders and succession, including 20 years as a senior partner at Spencer Stuart, a global leadership and board recruitment and advisory firm. For more information email FMarsteller@ diamondrockadvisors.com