Succession planning is getting sophisticated. High profile companies are receiving praise for smooth executive changeovers, while others are finding their reputations tarnished by indecision. Matt Henkes reports.
Vodafone chief executive Arun Sarin shocked many in the City last month by announcing that he would be stepping down as head of the communications giant. In many other firms, such an announcement may have triggered a nervous twitch in share price, but Saron’s successor Vittorio Coallo has been waiting in the wings long enough to make the handover virtually seamless.
The smoothness of this transition whipped up press speculation as to the durability of some other big corporate succession strategies, most notably Marks & Spencer and RBS, which are both experiencing their own unique difficulties as a result of not having a well-defined succession plan.
Andrew Hill, Chiumento
It’s not difficult to understand why it might not be every top man’s cup of tea to have his successor poised and ready to step into his shoes. But in organisational terms, if you fail to plan, well, you know the rest. Especially in these turbulent times, firms of any size can ill afford the drop off in performance and direction that comes with a messy handover at the top. It is crucial, especially for a large company, that there is a consistent, unified message about continuity of management.
The National Association of Corporate Directors Survey 2007 found that succession planning was the number one concern for companies worldwide. Andrew Hill, head of talent management at HR consultancy Chiumento, says that firms unable to respond quickly to senior management changes inspire a lack of investor confidence and destroy their value.
“In 2005, poor succession planning wiped an estimated £2bn off the stock market value of the FTSE 350, equivalent to 0.6% of those companies’ annual profits,” he says. “The key is to create a match between the company’s future needs and the aspirations of individual employees.”
Look to the future
Traditionally, the job of choosing the next generation of upcoming executives has fallen to the company board, hiring from outside the company, more often than not in their own image.
Andrew Baillie, business development director at recruitment and retention specialist Kenexa, believes that this is one of the most common pitfalls in succession strategy. “What they’ll often do is rely on what’s worked for them in the past,” he says. “But as the role in question grows it may well be that you’ll want a different set of skills and behaviour characteristics to go with that position.
“It happens a lot in wider recruitment as well,” he adds. “People tend to recruit in their own image and that might not be what’s required in terms of the role and the organisation.”
Vodafone is a great example of how organisations are becoming more sophisticated in their succession strategies, elevating promising individuals from inside the company and moulding their existing qualities to suit their eventual role.
In order to manage this process properly however, a specific set of skills is required from the HR division. Baillie says his clients often put their HR teams through British Psychological Society stage A and B training, enabling them to perform complex phychometric testing on likely candidates. “That’s the level of expertise necessary to take the data, interpret it in the right way and pull it through into a successful succession strategy,” he says.
“They take apart the constituent components of how to backfill continuity in any crucial role,” he adds. “What are the competencies, what are the skills and the personal measures that make them up?”
In finding candidates for these positions, many organisations will want someone who not only has the skills and competencies required for the role; but also embodies the more subliminal, cultural qualities of the organisation.
Andrew Baillie, Kenexa
James Underhay, commercial director at Chiumento, takes this further: “Measuring preferences and styles are equally as important as capacity and capability,” he says. “Good business leaders don’t have to be geniuses. If you’re in a people management role, it’s about your leadership and style, it’s about how you engage with other people.”
HR’s role is crucial in the process, he says. It’s all very well to make a plan, but so often it is the execution that lets the organisation down. “Even those organisations that have a very prominent succession planning process, it’s not at the top of anybody’s agenda,” says Underhay. “So the role of HR is to bring their expertise to bear, being the agitant of the organisation to make sure the plan is being executed properly.”
In addition, it is HR’s job to continually challenge succession candidates on their right to a place in the strategy. Also challenging the organisation on the assumptions it makes about its succession requirements.
“It’s a very pivotal role,” remarks Underhay. “Keeping the process on track and making sure that it’s delivering the most effective outcomes for the organisation.”