In 10 short years, the entire baby boomer generation will reach retirement age. As this population exits the workforce, it will create a dynamic shift in company leadership. New leaders who step into boomers’ shoes will be designated as brand stewards and challenged with maintaining the culture, products and services that made these organizations so successful.
A planned departure isn’t the only reason why company leaders change. Emergencies, illnesses, mergers and acquisitions, board dismissals, and resignations can all have a significant impact on businesses. PwC’s strategy and consulting business, Strategy&, reported in its 2016 CEO Success study that 14.2 percent of CEOs at the 2,500 largest public companies in the United States and Canada left their positions—but only about 60 percent had planned to depart from the organization.
“When a key position is vacated unexpectedly, e.g., due to death, health issues, or personal reasons—or expectedly but without a succession plan—it can cause turmoil within a company,” says Jimmy Sexton, CEO of the Esquire Group, an international tax advisory firm. “When this happens, a company, or at least one or more departments or divisions, are left without leadership and direction.”
Regardless of why, all CEOs will inevitably leave their positions, so it is critical for companies to plan for unexpected and intentional exits by their leaders. However, only two in five small businesses with fewer than 300 employees have succession plans, according to a 2017 online Harris Poll commissioned by Nationwide. Business owners who responded to the survey cited reasons for their lack of succession plans as:
- They didn’t know how to create a succession plan (11 percent),
- They didn’t want to give up their life’s work (14 percent), or
- It was simply unnecessary to have a succession plan (47 percent).
Even business owners or leaders who think they have a succession plan may have it confused with replacement planning. This typically identifies one or two current company leaders who are available to replace someone on short notice or during an emergency. The replacement is often a temporary, stop-gap measure and doesn’t account for a long-term, continual solution like succession planning.
By putting a strong succession plan and talent development program in place, companies can eliminate gaps in leadership, reduce costs associated with finding a replacement, and negate any bad press or lost confidence in the company. “The biggest thing a company can expect from implementing a well-thought out succession plan is confidence in the continuity of leadership,” Sexton adds.
Planning for Success
What exactly is a succession plan? For starters, it identifies the knowledge, skills and abilities needed by company leaders and establishes a plan to prepare individuals to perform these functions in the future. For a plan to be successful, considerations must be made for identifying skills gaps and training needs, retaining institutional knowledge, boosting morale and retention by investing in employees, and replacing unique or highly specialized competencies.
Identifying top talent at different levels of the company and assessing key competencies like communication and team building are crucial components of a succession plan. As employees are considered for leadership positions, it’s important to understand how they inspire and persuade employees, how they communicate to generate buy-in, and if they can build a support team with different perspectives and experiences to generate discussion and avoid group think.
Skills assessments like DiSC profiles help identify candidates’ strengths, where they have blind spots, and if they have the right makeup to be an executive or business owner. With a succession plan, there’s time to acknowledge, train and develop areas where future leaders need more work.
However, Mollie Moric, human resources specialist for Resume Genius, cautions business owners to be aware of common mistakes when creating their succession plan, such as:
- Concentrating succession efforts on C-suite positions;
- Selecting a successor based on current, not future, needs of the company;
- Choosing a leader based on family relations or personal connections instead of credentials or management capacity;
- Failing to implement proactive succession planning that includes an ongoing training and development program for high-potential members of staff; and
- Excluding successors from succession planning discussions and decisions.
“Although succession planning needs to be initiated and monitored by top-management, it should include all members of staff,” she says. “Our philosophy is to ensure that everyone receives management-level training.” Not only can positions vacated by managers who leave be quickly filled, but they are often filled by internal candidates.
Learning and Development for New Leaders
Succession plan implementation can take anywhere from 18 months to 10 years, depending on the company and leadership objectives, says Mark Dorman, president of Dorman Legacy Advisors and The Alternative Board – Western Reserve. It’s not only important to coach the leader who is exiting the company but also the next generation of leaders, he adds. “They can have a great education, but do they have practical skills necessary to run a business?” he asks. “We learned long ago in the [business transition] process to ask questions of how they are developing their successors.”
Leadership is a learned skill that takes time and experience to build. As companies plan for leaders to leave, they also must incorporate learning and development in their succession plans. Formal training programs designed to develop future leaders should be conceptual and experiential, customized to the needs of the learner, designed to help embrace and lead through change, and support the goals of a workforce.
Companies like the Frank Recruitment Group offer job-specific skills training for their employees, as well as the opportunity to learn and experience leadership skills early in their careers. “Providing great training for the next generation is hugely important for us, and we know that it’s one of the things our employees really want to see,” says James Lloyd-Townsend, CEO of the IT recruiting firm.
For example, all new sales and recruitment consultants spend the first month in an immersive training course that provides them with initial skills and tools they will need on the job. As they work, employees continue through the learning modules that are designed to develop confident leaders at every stage of their career.
Resume Genius also provides a variety of training opportunities for its employees. Moric says each department head is responsible for hosting a monthly workshop focused on teaching a new job-specific hard skill or developing an existing one. To address soft skills, company-wide workshops are held each quarter to discuss general topics such as leadership, problem-solving, communication and teamwork. All employees are encouraged to pursue external training and development opportunities, and they are provided a budget and the time to do so.
Leading at all levels is also important for Resume Genius. “Instead of having our department heads lead each project, we have employees take turns acting as ‘team lead’ on internal and interdepartmental projects,” she says. “This allows employees to gain invaluable leadership and project management experience, as well as product understanding.”
The Plan’s Cultural Impact
While business continuity is a major benefit of a succession plan, it also contributes to a positive impact on office culture and team confidence. “A clear and transparent succession plan gives a candidate clarity as to what is expected of them and what they need to achieve to take over a given role or position,” Esquire Group’s Sexton says. Additionally, it gives employees confidence in the stability of the company, and it provides for an objective way to measure a potential successor’s readiness to take over.
Succession planning efforts at Resume Genius have created a culture of accountability, adaptability, integrity, fairness, meaning, continued learning, and engagement, Moric says. “We’ve found that providing employees with opportunities for growth while simultaneously providing direction and training allows them to reach their fullest potential,” she adds. “When employees know we are committed to investing in their training and development in order to help them advance within the company, it creates a team that is confident in their individual roles as well as their future contributions to the company.”
By establishing a robust leadership succession plan, employees have a greater ability to move into leadership roles. Companies that develop their up-and-coming leaders benefit from improved retention of talented employees, reduced costs in external searches and faster decisions made to fill key positions, engaged employees who are encouraged by their career progress and new skills, and a positive corporate culture that encourages outside talent to seek employment with your company.