Ella Sytnik considers CEO succession and development systems in organizations to be a necessary condition for sustainable leadership and company development. In the article she describes most common barriers arising on the way to succession planning and offers ways of overcoming them.
"Let's say – what happens if I die tomorrow?"
(From an interview with Warren Buffett)
One of the most interesting results of the research conducted by the Ward Howell Talent Equity Institute is that the use of effective succession management, both as an instrument for sustainable development and to guarantee a company's future well-being, is exceedingly rare in Russian business.
Over the course of 10 years of study (from 2003 to 2014), we looked at 250 CEO replacements in leading Russian companies. Internal candidates were selected as successors only 36% of the time, and only half of those appointments could be considered successful. Of the external candidates, 70% were unsuccessful (they either didn't stay at the company long, or delivered poor results). Not to mention the collateral damage, typical for our market, that occurred as a result of these failures – the departure of capable and talented people from companies that replaced their CEOs. Obviously, an ineffective approach to leadership change has had a negative impact on the rate of development and stability of the business.
What Does Succession Provide?
Succession planning is a complicated process that demands serious investment of time and attention by key people in the company. Unfortunately, this process usually isn't a primary focus for organizations focused on long-term development and institutionalization of success. Succession planning involves the identification and development of leadership on all levels, helps maintain focus on the future, and effectively addresses the current day's challenges.
Active succession planning brings to the forefront of the organization a constant, proactive dialogue between its different levels, through which it is possible to identify, develop, and promote the most capable and effective leaders. From this, we enjoy the following results:|
- Sustainable leadership in a business;
- Retention and development of talented employees from all levels, as a concrete goal is approached vertically and horizontally: the creation and support of a source of leadership to ensure smooth succession;
- Promotion of a continuous renewal of progressive spirit in the organization, as meritocracy lies at the basis aa of succession;
- Establishment of common values, as a result of communication, which permeate all levels of the company during the process of regular leadership development.
A concerted effort in this direction yields phenomenal results. One of the most legendary is the history of General Electric: 140 years of growth, 11 CEOs (including founder Thomas Edison), all developed internally.
Is a successor necessary? Is it really necessary to form such an organized institute of succession? 100% of Ward Howell clients affirm that the answer to both questions is yes. In practice, however, a thorough approach to this problem is nearly impossible to find.
Perhaps the most significant impediment to effective transfer of responsibilities in Russian private business is what I call the “founder syndrome.” Let me illustrate this with an example. Igor N. – an exceptionally gifted person and talented businessman, who has reached a respectable age, finds himself faced with the following situation: a successful business, a costly team of managers, a lack of people able to make independent decisions in the company, a complete uncertainty of the company’s fate after his departure, and the unappealing over involvement of Igor N. in the business, manifesting itself in:
- Micromanagement of everyone and everything; authoritarianism and a disregard for opinions other than his own;
- Lack of interest in business's priorities;
- Lack of comprehension regarding what to do with potential successors (there were several attempts to train a a successor, to no avail);
- Vision of himself as an integral part of the business;
- Vision of himself as a unique leader for the business.
Every year the company turned over of half of its key leaders. Igor N. was convinced that until they found a person qualified enough to come in and take control from his hands, the search would continue...and he'd carry on as he'd always done.
Most business owners are involved in day-to-day affairs of the business. Like Igor, they brilliantly manage the present day’s problems, but don't think about the future; or, they look for a new leader beyond the company without making any internal changes, including their own approaches.
What prevents Russian businessmen from seriously engaging in succession planning? I see several predominant barriers, and would like to share experiences that demonstrate how to overcome them.
Barrier 1. Is it even possible to plan more than five years in advance?
Succession planning requires time; it is a difficult and long process, the results of which will not be seen immediately. It is simpler and more natural to engage in more palpable tasks, which provide quick returns.
Our experience tells us that the first step to overcoming this barrier is the principal (whether that is the owner(s) or the board of directors)'s new understanding of their fundamental significance in ensuring the sustainability of the business.
As those involved in succession projects, we help key figures answer several questions:
- What kind of expectations for succession planning does the principal have from the institution?
- What is his role in succession planning management?
- Does the organization have a process to identify and develop employees with high potential?
- How strong is this process in the organization’s top teams?
- What is the fate of the company's top performers?
- What's going to happen, if a new CEO is needed tomorrow?
And so on.
The goal is to rationally identify potential areas in the company's prevailing leadership management process that are not sufficiently effective.
Barrier 2. Everything will fall apart without me.
Succession planning begins with an honest self-assessment and constructive reflection on difficult topics: one's own potential inadequacy (poor fit for future challenges), age, death, limitations on inheritance.
Succession planning is a process that involves difficult choices and conversations that we all – whether simple clerks, members of the board of directors, or shareholders in a leading business – subconsciously try to avoid.
According to our observations, the perception of one's own indispensability is often a subconscious avoidance of difficult choices, conversations, and deliberation. The absence of a transparent leadership management process in the company leads to a lack of information about employees with high potential. The company itself, to its shareholders, sometimes seems like a black hole of talented and capable people at all levels.
We understand that each situation is unique, with complex factors. Our work begins by formulating expectations and an objective diagnosis of the current state of affairs, which includes a risk assessment. From the outset, in collaboration with our clients to create a transparent project structure (with concrete guidelines, timeframes, stages, and results), we help them systemically work towards what previously seemed insignificant or uncontrollable – seeking out and developing a succession plan, which renews and supports leadership and the company's brand for generations.
Barrier 3. Where/how can I find a second me?
Finding a second self is not possible, but what's most important is that it's also not necessary. The issue of succession planning is less about who will replace the company's CEO, and more about determining which skills are necessary for the CEO's replacement today, so that he can manage the company tomorrow. What is the portrait of the CEO who should manage the company over the next 10 years? What kind of competencies should he hold? Our experience shows that it's important to initiate internal discussions (moderated effectively with external facilitation), the result of which is a general outline of the successor's profile, the system, and the evaluation criteria for key shareholders.
Next is the creation of a rational evaluation process, in which we recommend including all potential candidates for the leadership role. The circle of such candidates is not limited to only subordinates of the current leader – these candidates can excellently manage their current responsibilities under the given model of leadership, but may not be ready for the challenges of tomorrow. Our research shows that it is preferable to include a wide range of contenders in the evaluation process.
It's important to carefully consider the choice of tool. In particular, our company, in collaboration with the INSEAD business school, developed a deep assessment called the Executive Assessment, created specifically for the task of developing leadership. This tool focuses not only on past performance and the leader's experience, but, most importantly, reveals potential and key areas for growth. This, in turn, provides the opportunity to create an effective plan to develop and integrate the successor.
No less important is the assessment of external potential candidates. This kind of benchmarking leads to a more objective assessment of internal resources.
Obviously, ideal candidates don't exist. Effective tools of evaluation provide an understanding of which areas coaches can focus on in order to ensure the development of any lacking competencies, and to ensure the potential successor's smooth transition into a leadership role when the time comes.
Barrier 4. How do I fit into this system?
More than 20 years of experience in our work with domestic business has shown that a large part of a successor breakdown is related specifically to this. Succession implies that the company will be managed by someone else. And no matter how confident you are in this other person, succession is always a change, and consequently, fear that the successor will change the company and its culture, destroying the leadership legacy of the previous generation.
It's necessary to take as rational an approach as possible to the development and implementation of a plan for preparing and developing a successor(s). According to our experience, these plans are effective if they consist of concrete managerial tasks, regular formal and informal educational events, and provide for periodic assessment of results and feedback. It is critical that there be an internal mentor who can be responsible for the development of the successor, as well as internal and external coaching. It is of the utmost importance to closely oversee leadership change, particularly coaching, which is carried out at a distance from the head of operations management, and helps to identify new challenges or landscapes for self-actualization during a new stage of life.
What to Start With
A mature model of corporate governance assumes that the board of directors plays a key role in the issues related to identifying, evaluating, and developing a successor, as well as ensuring a smooth change in leadership. However, in domestic business, it’s hardly ever like that.
Nevertheless, the first stop should be to understand that this task cannot be delegated: the key internal players are the shareholders and the board of directors. It requires the active, conscientious participation of key stakeholders within the company.
The presence of external consultants who specialize in succession planning, at the first stage, can:
- Systemize the process,
- Share best practices,
- Objectify evaluation,
- Ensure effective implementation within a given timeframe.
After the process has begun, regular, independent evaluation from external consultants helps to make corrections and incorporate succession management into the corporate rhythm (the pulse of a corporation).
Succession planning at the CEO level is a continuous endeavor to uphold a system that develops leadership at all levels of a company. Succession management is as important as marketing, operations, or sales. In addition to ensuring leadership continuity, effective succession planning and management helps to identify and manage talent, which consequently has adirect, positive impact on financial results.
Succession must be addressed at the highest level of an organization. This task cannot be handed down to a functional unit.
If you are a shareholder, CEO, or member of the board of directors, then one of your most important areas of responsibility regarding your business is the identification and development of the next generation of leaders. It is up to you to make the decision to evaluate real obstacles to implementing an effective mechanism for succession, and to begin building that system.
The choice and preparation of a successor is a long and painstaking process. Start today.
This article was published a part of the seventh issue of Talent Equity Newsletter "Succession in Russian Business".
To read all other journal issues, please follow the link to TE Newsletters page.