For years, public company directors have told me their single most critical responsibility is to ensure a smooth and effective process for CEO transition. And I've heard Bill Conaty, the former longtime head of human resources at General Electric, say great leaders help develop their own successors and succession plans; lousy leaders are intimidated by them.
Joseph Daniel McCoolPosted by Jim Bethmann
08/12 @ 02:07 PM
08/12 @ 02:07 PM
Yes, indeed H&S;has a vested interest and so do others. Frankly, one could surmise that as an executive recruiter, the vested interest is in the status quo.....more outside recruiting better for all of us however, in a more serious light is the real issue...corporate survival! CEO's don't have the time and most importantly , the money, to spend on succession planning programs or the employees that would administer them due to the ever increasing cost of doing business. The increasing cost of each FTE in this country is skyrocketing thanks to the current Administration and there is no relief in sight! (Oh and lets penalize those trying to survive by outsourcing as well!!) And those that do have a "plan", generally give it lip service....take HP for example> They have spent Millions with H&S;doing assessments of senior talent..yet..here they are frankly, without a clear successor to Mark Hurd...whose responsibility is that??? I could go on for hours but wait, here comes another CEO search...thank goodness they don't have a succession plan!!!Cheers....
Posted by Joseph Daniel McCool
08/12 @ 01:33 PM
08/12 @ 01:33 PM
Really appreciate all these great insights on this important topic. Thanks for sharing your reactions to my initial posting. Also, can't help but respond to the comments by Alex Z. Remember that it's the board's responsibility to drive CEO succession, not the CEO's job. The board of directors should be the driver, not the sitting CEO, so given this reality, whether the CEO thinks he or she knows who should succeed them is immaterial. The matter is whether the board is actively staying on the succession conversation, as it must, even if it recently added a new CEO. As history tells us, there are a variety of things that can force a new CEO's exit, or the kind of sudden, surprise departure as in the very recent case of HP CEO Mark Hurd. Appreciate your view, Alex, with regard to CEO tenure, but again, planning for CEO succession is the board's mandate.... unfortunately, however, in many cases, it's the CEO who is calling the shots and the board that is not adhering to its governance and nominating responsibilities.... Again, thanks all for these great and insightful posts! I've already learned more about the topic!
Posted by Lisa Nirell
08/12 @ 01:15 PM
08/12 @ 01:15 PM
Joseph, these statistics should scare every investor and stakeholder.
In my experience, I find that many CEOs lack a vision for the future prosperity and vitality of the organization. This is especially endemic in entrepreneurial businesses with less than $100M in revenues. The situation persists even more often within privately held companies.
One 72 year-old CEO I worked with in Washington--a heart attack survivor and pacemaker user--told me he wanted to "die at his desk." I wonder how his 250 employees and Board would feel if they knew that.
Lisa Nirell
author, "EnergizeGrowth NOW: The Marketing Guide to a Wealthy Company"
http://blog.energizegrowth.com
In my experience, I find that many CEOs lack a vision for the future prosperity and vitality of the organization. This is especially endemic in entrepreneurial businesses with less than $100M in revenues. The situation persists even more often within privately held companies.
One 72 year-old CEO I worked with in Washington--a heart attack survivor and pacemaker user--told me he wanted to "die at his desk." I wonder how his 250 employees and Board would feel if they knew that.
Lisa Nirell
author, "EnergizeGrowth NOW: The Marketing Guide to a Wealthy Company"
http://blog.energizegrowth.com
Posted by Douglas Adams Gourley
08/12 @ 01:02 PM
08/12 @ 01:02 PM
It does not surprise me that there is a high percentage of CEOs who do not have a clear succession plan. In fact, I would guess that this would be true for the entire senior manangement team in the companies surveyed by Heidrick & Struggles, since company culture is drip down.
More and more, it is image and politics, rather than substative business acumen, that determine who will occupy the CEO position, particularly in large companies. I have worked for two Fortune 500 firms in my career and this has been the rule rather than the exception. These functionally incompetent CEOs are naturally insecure and do anything possible to appoint and maintain a board of directors that are friends or political allies rather than dispassionate observers and guides.
Thus: incompetence = insecure = no clear successor (threat) and the CEO and his/her handpicked management and BOD pals are all happy. When the stock tanks or performance is poor, they walk with muli-million dollar severance packages. Only the employees, customers and shareholders are unhappy - and who cares about them?
More and more, it is image and politics, rather than substative business acumen, that determine who will occupy the CEO position, particularly in large companies. I have worked for two Fortune 500 firms in my career and this has been the rule rather than the exception. These functionally incompetent CEOs are naturally insecure and do anything possible to appoint and maintain a board of directors that are friends or political allies rather than dispassionate observers and guides.
Thus: incompetence = insecure = no clear successor (threat) and the CEO and his/her handpicked management and BOD pals are all happy. When the stock tanks or performance is poor, they walk with muli-million dollar severance packages. Only the employees, customers and shareholders are unhappy - and who cares about them?
Posted by Joseph Daniel McCool
08/12 @ 12:15 PM
08/12 @ 12:15 PM
Thanks for the wide variety of comments to follow my initial posting. These insights have really added a lot to the discussion of this topic. One point I'd add on is in reference to Alex's comments. The accountability for CEO succession planning rests with the board, not the sitting CEO, so yes, even if the board has recently added a new CEO, the succession planning process has to be continual, ongoing, lest the board (and shareholders) be caught unprepared. As the Mark Hurd fiasco has shown, unanticipated circumstances can lead to a CEO's very sudden exit, and if the board hasn't done its job, the stock, employees and customers may be adversely impacted. Of course, part of the problem is that CEOs are indeed calling the shots with regard to their own succession, and that's a major failing of any board in meeting one of its core responsibilities.
Posted by GILLES LAURENT
08/12 @ 11:52 AM
08/12 @ 11:52 AM
I made several conferences and business presentations dedicated to this topic. Here are the sumary, feel free to contact me for the full document :
succession plan cartography - La cartographie du plan de succession®
“making succession plans more efficient”
Introduction
1st Part
What is cartography ?
Cartography ! What added value ?
2nd Part
Cartography and HR
Case study : succesion plan cartography
Working paper : conceptual frame
Gains
Variation analysis and recommandations :
Conclusion
succession plan cartography - La cartographie du plan de succession®
“making succession plans more efficient”
Introduction
1st Part
What is cartography ?
Cartography ! What added value ?
2nd Part
Cartography and HR
Case study : succesion plan cartography
Working paper : conceptual frame
Gains
Variation analysis and recommandations :
Conclusion
Posted by CorDell Larkin
08/12 @ 11:50 AM
08/12 @ 11:50 AM
Joseph,
Great topic, good comments and insight!
In my opinion the reasons for the discrepancy are numerous and include the following.
First, board members rarely dedicate the time necessary to identify and develop successors (which the survey you quoted shows). While identifying a successor can take as little as 60-90 days (define current and future leadership needs, develop competency model, source potential candidates internally and externally, assess for best fit, select, negotiate terms) and cost a board member a few hours to meet and review some paperwork, developing successors takes a lot more. To do it well I think a company has to complete a gap analysis annually (because business needs/directions change this fast) which is time intensive and takes board members and executives away from everyday work. Then the company and board have to find the resources to provide potential successors with the right kinds of development opportunities, which usually bring a high price tag in the form of performance risk. And, even after doing all this for years at the very moment a CEO leaves the board most likely has a policy that requires it do to a search that includes external candidates because the board feels this is the best way to exercise their fiduciary duty to the shareholders to ensure optimal organizational performance. Even if a company has the resources to do this, and the commitment to see it though, it leaves one asking why not just look when the need arises because there is always a chance that you might develop someone before the CEO is ready to leave and then everything you spent will benefit some competitor as your CEO ready successors leave to lead another organization. If you think being a board member is all fun and games, think again. Over the past 10 years this has gotten way more stressful, demanding, and risky. Fewer people are willing to do it, and fewer are qualified, which is why they get stretched so thin. Be mindful of what you ask them to do!
Second, board members may not have the skills to coach and mentor general managers (never mind the fact that few have the time). In my experience, most board members are selected for their functional, market, product, or service expertise and connections. How often have you seen board members assess on their ability to develop others and evaluated based on their track record for doing so? This is not the fault of the board members. If they are selected primarily to add value in other ways they are doing their job!
Third, in my experience board members rarely get lots of exposure beyond 3-4 company executives (and one is the CFO...no wonder this is the staff position most likely to become CEO). In a recent board design and recruitment strategy project I did for a non-profit we specifically designated five different staff members to serve as liaisons to the five standing committees to ensure board members got exposure to the five most important positions/people within the organization. By default the board members of this organization will meet with organizational leaders at least six times a year, work with them on strategic planning and tracking and measuring performance.
Fourth, few CEOs are financially motivated to replace themselves (and even fewer want to). Here is a crazy idea, put a term limit on the CEO. If s/he, the board, and the organization knew another person would have to take over at a given point in time there would be huge increases in resources dedicated to making this happen. Here is another crazy idea, make it more rewarding financially to the current CEO should an internal successor be named than an external one. Heck, just put a separate reward on it instead of believing that stock price performance for the years after the CEO leaves is good enough. One of the things I do when researching companies is check to see if there is published employment agreement in their financial statements. I have never seen the mention of rewards based on succession! Additional, most CEOs leave their position very wealthy so the future stock price performance may not be the motivator that most people think it is. BTW, don't blame the CEO. Most do what they are paid to do, and succession just isn't part of that equation.
Fifth, most organizations still lack the infrastructure and/or the guts to move leaders around and give them the experiences (or push/reward them) to develop the skills necessary to be CEO. I’ve done several P&L;leader searches and none of the hiring managers/committees has ever considered someone who didn’t have prior P&L;ownership, unless it was a start-up. Every done a $1B P&L;owner search...hiring manager/committee won't even consider someone under $750M...they will say the position is to complex. Want someone with $5B P&L;experience, your salary comp will require you to pay them the market rate (or give away huge upside potential) even if your only $1B. I’ve also helped a number of companies with CEO/Executive succession planning and few of these programs ever include a staff executive. I’d say less than 5% of organizations will take a great leader running IT, marketing, or customer service and give them a chance to run a P&L;. I’ve also done several executive staff searches and no P&L;owner has ever been interested, not that I blame them. Once you are on the P&L;owner track, why leave? That could destroy your chances of advancing to the next P&L;! Of course, if you think all the great leaders are already in P&L;positions you won't have to worry about this point.
I could go on, but let us see what others have to say.
CorDell Larkin
@cordellco
Great topic, good comments and insight!
In my opinion the reasons for the discrepancy are numerous and include the following.
First, board members rarely dedicate the time necessary to identify and develop successors (which the survey you quoted shows). While identifying a successor can take as little as 60-90 days (define current and future leadership needs, develop competency model, source potential candidates internally and externally, assess for best fit, select, negotiate terms) and cost a board member a few hours to meet and review some paperwork, developing successors takes a lot more. To do it well I think a company has to complete a gap analysis annually (because business needs/directions change this fast) which is time intensive and takes board members and executives away from everyday work. Then the company and board have to find the resources to provide potential successors with the right kinds of development opportunities, which usually bring a high price tag in the form of performance risk. And, even after doing all this for years at the very moment a CEO leaves the board most likely has a policy that requires it do to a search that includes external candidates because the board feels this is the best way to exercise their fiduciary duty to the shareholders to ensure optimal organizational performance. Even if a company has the resources to do this, and the commitment to see it though, it leaves one asking why not just look when the need arises because there is always a chance that you might develop someone before the CEO is ready to leave and then everything you spent will benefit some competitor as your CEO ready successors leave to lead another organization. If you think being a board member is all fun and games, think again. Over the past 10 years this has gotten way more stressful, demanding, and risky. Fewer people are willing to do it, and fewer are qualified, which is why they get stretched so thin. Be mindful of what you ask them to do!
Second, board members may not have the skills to coach and mentor general managers (never mind the fact that few have the time). In my experience, most board members are selected for their functional, market, product, or service expertise and connections. How often have you seen board members assess on their ability to develop others and evaluated based on their track record for doing so? This is not the fault of the board members. If they are selected primarily to add value in other ways they are doing their job!
Third, in my experience board members rarely get lots of exposure beyond 3-4 company executives (and one is the CFO...no wonder this is the staff position most likely to become CEO). In a recent board design and recruitment strategy project I did for a non-profit we specifically designated five different staff members to serve as liaisons to the five standing committees to ensure board members got exposure to the five most important positions/people within the organization. By default the board members of this organization will meet with organizational leaders at least six times a year, work with them on strategic planning and tracking and measuring performance.
Fourth, few CEOs are financially motivated to replace themselves (and even fewer want to). Here is a crazy idea, put a term limit on the CEO. If s/he, the board, and the organization knew another person would have to take over at a given point in time there would be huge increases in resources dedicated to making this happen. Here is another crazy idea, make it more rewarding financially to the current CEO should an internal successor be named than an external one. Heck, just put a separate reward on it instead of believing that stock price performance for the years after the CEO leaves is good enough. One of the things I do when researching companies is check to see if there is published employment agreement in their financial statements. I have never seen the mention of rewards based on succession! Additional, most CEOs leave their position very wealthy so the future stock price performance may not be the motivator that most people think it is. BTW, don't blame the CEO. Most do what they are paid to do, and succession just isn't part of that equation.
Fifth, most organizations still lack the infrastructure and/or the guts to move leaders around and give them the experiences (or push/reward them) to develop the skills necessary to be CEO. I’ve done several P&L;leader searches and none of the hiring managers/committees has ever considered someone who didn’t have prior P&L;ownership, unless it was a start-up. Every done a $1B P&L;owner search...hiring manager/committee won't even consider someone under $750M...they will say the position is to complex. Want someone with $5B P&L;experience, your salary comp will require you to pay them the market rate (or give away huge upside potential) even if your only $1B. I’ve also helped a number of companies with CEO/Executive succession planning and few of these programs ever include a staff executive. I’d say less than 5% of organizations will take a great leader running IT, marketing, or customer service and give them a chance to run a P&L;. I’ve also done several executive staff searches and no P&L;owner has ever been interested, not that I blame them. Once you are on the P&L;owner track, why leave? That could destroy your chances of advancing to the next P&L;! Of course, if you think all the great leaders are already in P&L;positions you won't have to worry about this point.
I could go on, but let us see what others have to say.
CorDell Larkin
@cordellco
Posted by Syed Hasnain
08/12 @ 11:46 AM
08/12 @ 11:46 AM
Joe,
Thanks for taking up this strategic issue – We also face same concerns from our clients. So much so that recently a CEO was complaining that his direct reports do not develop successor and on my immediate question “did you developed one” poor guy had no answer.
I totally agree with most of the comments i.e.,
• CEO’s are also human and feel insecure.
• Development require proper time (for CEO I feel three to five years should be provided)
• Changes come from the top.
• Succession planning is extremely important and should be documented / planned.
Now having said all this here’s my question:
Why don’t we develop a new tool which will not be threatening, provide ample fixed time for planning and development and document as well. I mean what if we don’t use the word Succession Planning and include our requirements into (for example) developmental planning – Divide it into several areas i.e., individual, team, organization, etc. planning - Add some carrot i.e., bonus, incentive, etc. - Also feel free to add and remove things you need to cover - give it a fresh look and feel and experiment.
I experimented with Retention Planning documentation and sugarcoating really worked.
Thanks for taking up this strategic issue – We also face same concerns from our clients. So much so that recently a CEO was complaining that his direct reports do not develop successor and on my immediate question “did you developed one” poor guy had no answer.
I totally agree with most of the comments i.e.,
• CEO’s are also human and feel insecure.
• Development require proper time (for CEO I feel three to five years should be provided)
• Changes come from the top.
• Succession planning is extremely important and should be documented / planned.
Now having said all this here’s my question:
Why don’t we develop a new tool which will not be threatening, provide ample fixed time for planning and development and document as well. I mean what if we don’t use the word Succession Planning and include our requirements into (for example) developmental planning – Divide it into several areas i.e., individual, team, organization, etc. planning - Add some carrot i.e., bonus, incentive, etc. - Also feel free to add and remove things you need to cover - give it a fresh look and feel and experiment.
I experimented with Retention Planning documentation and sugarcoating really worked.
Posted by Kara Cleaver
08/12 @ 11:07 AM
08/12 @ 11:07 AM
Interesting indeed.
Perhaps a bit of a digression from the intended conversation, but I see it every day...the resistance of small company CEOs to bring in new people and to step aside from this role. So many founders, whom I greatly respect having been there myself, can't seem to grasp it is in their best interest to bring in someone who can lead them to the next level, or at least to get an executive mentor/coach. These individuals need to realize they are a greater asset to the company in another role and the company overall will grow far more rapidly bringing in someone suited to that role. Few people are well suited to lead a company at all stages of its growth and development.
It is far better to own a smaller percentage of something large, than a larger percentage of something small.
Being the one to bring in the leader who makes it happen is a great achievement!
Perhaps a bit of a digression from the intended conversation, but I see it every day...the resistance of small company CEOs to bring in new people and to step aside from this role. So many founders, whom I greatly respect having been there myself, can't seem to grasp it is in their best interest to bring in someone who can lead them to the next level, or at least to get an executive mentor/coach. These individuals need to realize they are a greater asset to the company in another role and the company overall will grow far more rapidly bringing in someone suited to that role. Few people are well suited to lead a company at all stages of its growth and development.
It is far better to own a smaller percentage of something large, than a larger percentage of something small.
Being the one to bring in the leader who makes it happen is a great achievement!
Posted by Alex Zoghlin
08/12 @ 09:45 AM
08/12 @ 09:45 AM
I appreciate your attempt to spark a discussion, but a little research, and some facts can easily reconcile this.
The average tenure of a fortune 500 CEO is 3.5 years (http://books.google.com/books?id=FtnUKxy_zxkC&pg=PA68&dq;="average+tenure"+"fortune+500"+ceo&hl=en&ei=kMo_TNiMEsKFnAeJ9aTGBw&sa=X&oi=book_result&ct=result&resnum=6&ved=0CEUQ6AEwBQ).
If half of the fortune 500 CEO's can't name a successor, they are likely only half way though their tenure - about 1 year, 9 months. Even Jack Welch couldn't have named a successor less than two years into his tenure. If Bill Conaty is correct, then a great leader will take the time to properly develop their own successor, and succession plans. Seems to me if 50% can name a successor, they are doing a much better job than the data implies. The real question then is how long should that process take, and when should it start? Should a CEO be able to name a successor 2 years into his/her tenure?
The average tenure of a fortune 500 CEO is 3.5 years (http://books.google.com/books?id=FtnUKxy_zxkC&pg=PA68&dq;="average+tenure"+"fortune+500"+ceo&hl=en&ei=kMo_TNiMEsKFnAeJ9aTGBw&sa=X&oi=book_result&ct=result&resnum=6&ved=0CEUQ6AEwBQ).
If half of the fortune 500 CEO's can't name a successor, they are likely only half way though their tenure - about 1 year, 9 months. Even Jack Welch couldn't have named a successor less than two years into his tenure. If Bill Conaty is correct, then a great leader will take the time to properly develop their own successor, and succession plans. Seems to me if 50% can name a successor, they are doing a much better job than the data implies. The real question then is how long should that process take, and when should it start? Should a CEO be able to name a successor 2 years into his/her tenure?
Posted by David Matthews
08/12 @ 09:44 AM
08/12 @ 09:44 AM
Interested in the results of the study conducted on succession planning
Posted by Gregory Holt
08/12 @ 09:29 AM
08/12 @ 09:29 AM
In my experience as the second in command (VP, COO) most CEO's, if honest with themselves, are poor mentors because of their typical "A" personalities or insecure. Putting a succession plan in place to most CEO's is like admitting that they are "HUMAN" and "VULERNABLE" people just like the rest of us. Boards hesitate to implement such plans because they don't want the CEO to think they are trying to replace him/her in the immediate future. It all boils down to company culture and the "Heart" of the leader. If they are a servant leader then they are always looking out for the company's best interest and they plan for their exit with pride and desire to leave a legacy. If they are self serving and insecure a succession plan is not like to happen.
Posted by douglasbeck@msn.com
08/12 @ 09:17 AM
08/12 @ 09:17 AM
There should be discussions at the meeting held with the board of directors on this topic. Sucession planning is extremely important in a rare case of an emergency ( death, fraud, forced resignation, etc..) and it is important there is a plan in place to handle these situations. To find the right CEO or leadership roles can take several months.
Posted by Dave Opton
08/10 @ 02:56 PM
08/10 @ 02:56 PM
Joe,
Companies in general have never done a super job with succession planning, and I think that the reason in large part, as it does with most everything else, starts and stops with the CEO and the message he/she delivers in terms of just how important they really think it is.
For sure the search world benefits from this big time for the reasons you suggest.
Companies in general have never done a super job with succession planning, and I think that the reason in large part, as it does with most everything else, starts and stops with the CEO and the message he/she delivers in terms of just how important they really think it is.
For sure the search world benefits from this big time for the reasons you suggest.
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