Succession Planning (CEO Succession) - Explained
What is Succession Planning?
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Table of ContentsWhat is Succession Planning?How Succession Planning for the CEO is DoneAcademic Research on Succession Planning
What is Succession Planning?
Succession Planning is a key attribute that every company must exhibit at a point in time. This is a strategy that enables the management of a company decide on and develop people that will move up to key posts when some officials leave. This process entails the identification of potential employees with leadership traits that can assume leadership position in a company. A CEO succession Plan is a strategy to decide who can replace the CEO once he leaves the company, resigns or retires. This strategy is crucial for maintaining the management and decision-making structure of a company.
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How Succession Planning for the CEO is Done
Succession Planning for the CEO simply means the process of identifying, nurturing and equipping a potential candidate that can become the successor of the CEO. No CEO can be for life, hence, companies make plans for new leaders to assume leadership roles once they are vacant. A recent survey conducted by the National Association of Corporate Directors reveal that two-thirds of public and private companies in the United States admit that they have no formal CEO succession plan in place. This number raises concern in the future of these companies. CEO succession plan is vital as the current CEO needs to nurture and prepare worthy candidates before his position is vacant. A recent study of succession-planning practise conclude that there are ten key dimensions to succession planning practise. The dimensions are crucial as they serve as the key ingredients for a successful CEO succession planning practise. These dimensions also pay attention to the risks that leadership transitioning entails and how positive outcomes can be harnessed despite the risks. These ten dimensions however are include the facts, people and processes involved in a CEO succession planning.
- The first dimension is the establishment of a board committee who must be given explicit oversight duties in the CEO succession planning process. This entails that the board should be given full right and accountability for succession planning. However, in the process, there should the bye laws stipulating that board directors should not assign the succession planning duty to just in individual in the board like the chairman or even the CEO. This is to incorporate the varying inputs and interpersonal dynamics of the board members into the process.
- A realistic timeframe should be chosen for the succession planning process. In order to achieve a seamless transitioning from one leadership or CEO to the next, a time frame must be set for the succession planning process. This time frame must be carefully decided on as it must cater for comprehensive preparation for transitioning and preparedness of the candidates for their roles. The time set must not be too short or too long in order to avoid mistakes and risks associated with transitioning. Setting a succession planning time frame ensure that no laxity is displayed by the board in the planning process.
- Another dimension crucial to CEO succession Planning process is preparation for emergency transitioning. Different factors such as an unexpected departure, death or resignation of a CEO can warrant an emergency succession plan. This is needed so that the management of the company will not be at stake. Failure for prepare for emergency succession plan does not only ruin the reputation of the company but also indicates a poor board governance of the company. Hence, preparation for emergencies is another dimension that the board of any company should not overlook.
- A CEO succession planning also requires the board to consider who is fit for a leadership role. However, before considering who it fit, the board must consider an alignment between the skills, strategies and capacities of the candidate with their future role. Hence, the concern should not just be who but also what can he do, how can he accomplish the task, when will he give results. Aligning the candidates skills and strategy with the intended job profile should be a point of concern during a CEO succession planning process. All these however, should be a collective decision of members of the board.
- Another key dimension in a CEO succession planning process is equipping and developing people towards the sustainable growth of a company. Every company should embrace a culture of development that will span across different ranks in the industry in preparing members for future roles. This dimension entails a company building a leadership or talent pipeline in such a way that even if an emergency situation arises, the board will seamlessly select a candidate to replace the CEO. It also involves building and setting-up people to take leadership roles oor additional tasks.
- If a company does not find any worthy candidate to replace the CEO within the organization, the next point of resort is to hiring an external talent. However, board of companies are often skeptical about hiring an external talent. For instance, the payment of an externally hired CEO is often greater than that of a CEO appointed internally. This dimension entails that during a CEO succession planning process, potential external candidates can also be evaluates peradventure a need arise for hiring external talent. The identification of suitable candidates is also crucial, the external talents values must resonate with the cultures and principles of the company.
- This dimension incorporates in depth assessment of people into the succession planning process. Failure to carry out an in-depth evaluation of candidate can result in fatal consequences for a company, this is why it is fundamental that through assessment of candidates is done. In order to select the appropriate candidate, board members must engage in interpersonal interactions with the candidate and aso gather relevant information about his personality, standards and values. This means that dependence on resumes and appraisal letter by board members hus reduce, rather, through insightful information, the abilities and character of the candidates should be assessed.
- CEO succession or transitioning is not just an event, it is a process. There must be both an active and proactive management of the succession process. A proactive management include a period of familiarization between the incoming CEO and the outgoing one. Most times, board members do not pay attention to this dimension and this affects the transitioning or succession. The incoming CEO must be well integrated into the management processes and this can be achieved during the familiarization process. Hence, until a wholesome integration takes place, the transition stage is incomplete.
- A CEO succession planning process does not end when a successor has been selected. After the transition, the board is still required to measure the performance of the new CEO. This is a follow-up process that takes up to a year after the transitioning, it is important to know how well the new CEO is coping with his responsibilities and issues that need to be addressed. Measuring the performance and progress of the CEO after the transition entails a study of business dynamics, human interactions and innovative strategies that the CEO exhibits.
- Aside from measuring the performance of the new CEO, it is also vital that members of the board manage the dynamics in the SEO succession. This is a dimension that should not be neglected by the board of a company, it addresses the relational dynamics between players involved in the process such as the personal emotions that tend to have effects on the actions of the executives.The tenth dimension addresses the conflicting forces such as power, ego, fear and uncertainty in the dynamics of a CEO succession.
Academic Research on Succession Planning
- Integrating leadership development and succession planning best practices, Groves, K. S. (2007). Journal of management development, 26(3), 239-260.
- Will succession planning increase shareholder wealth? Evidence from investor reactions to relay CEO successions, Shen, W., & Cannella Jr, A. A. (2003). Strategic Management Journal, 24(2), 191-198.
- Succession planning as planned behavior: Some empirical results, Sharma, P., Chrisman, J. J., & Chua, J. H. (2003). Family Business Review, 16(1), 1-15.
- Ending the CEO succession crisis, Charan, R. (2005). Harvard business review, 83(2), 72-81.
- Organizational complexity and succession planning, Naveen, L. (2006). Journal of Financial and Quantitative Analysis, 41(3), 661-683.
- Succession management: The next generation of succession planning, Leibman, M., Bruer, R. A., & Maki, B. R. (1996). People and Strategy, 19(3), 16.
- Business succession planning: a review of the evidence, Ip, B., & Jacobs, G. (2006). Journal of Small Business and Enterprise Development, 13(3), 326-350.
- Succession planning in SMEs: An empirical analysis, Motwani, J., Levenburg, N. M., Schwarz, T. V., & Blankson, C. (2006). International Small Business Journal, 24(5), 471-495.
- CEO duality, succession, capabilities and agency theory: Commentary and research agenda, Harris, D., & Helfat, C. E. (1998). Strategic Management Journal, 19(9), 901-904.Succession planning in nonprofit organizations, Froelich, K., McKee, G., & Rathge, R. (2011). Nonprofit Management and Leadership, 22(1), 3-20.
- CEO succession planning: Finally at the center stage of the boardroom, Zhang, Y., & Rajagopalan, N. (2010). Business Horizons, 53(5), 455.