Successful Succession

Succession issues are currently at the top of many organisations’ agendas – and if they’re not, they should be. It is difficult to effect a smooth and successful handover and forward planning and careful consideration are essential.

The Football Association will be praying that Fabio Capello will prove considerably more successful as England manager than his predecessor Steve McLaren, whose bungled appointment in May 2006 was considered ill-advised from the start.

Knee-jerk succession is a bad thing, but having a ‘crown prince’ waiting in the wings for years is not an easy situation to manage, as Prince Charles and Gordon Brown will no doubt testify.

But what will happen to the Virgin ‘empire’ once Richard Branson goes up in his proverbial balloon is anyone’s guess, as there is no indication of a number two being ready to step up to the plate.

Most succession plans amount to crisis management. The culture of short termism in which bosses are booted out for not delivering instant results is partly to blame. The average tenure of a chief executive in the private sector is less than four years, and falling, and those hired from outside the company move on faster than those who rise through the ranks.

Chief executive churn is unsettling, destabilising and demoralising and can lead to a spiral of decline. It is also costly: the number of headline-grabbing ‘rewards for failure’ is mounting. So it’s not surprising that shareholders are starting to question companies more closely about their succession plans, which are increasingly being seen as part of good corporate governance.

There are some who ask why we needed to hire an Italian to manage the England football team. Others question the rising number of foreigners running British companies – at the last count 28 FTSE-100 companies had a non-UK national as chief executive. While this may reflect the increasing globalization of business, it owes at least something to companies’ neglect of their talent pipeline over the past 15 years.

Not only do many businesses not plan for succession, they also have scant idea of the talent they have and need within the organisation. So they resort to the ‘easy’ option of drafting in business ‘saviours’, and if they are foreign saviours, then all the better.

The problem with this approach is highlighted by Jim Collins in his book Good to Great, in which over 90% of the ‘great’ companies he identifies are run by chief executives who grew up in the business. There are very good reasons for this, claims Collins. “You need executives who have ambitions for the company rather than themselves, and those people tend to be insiders rather than outsiders who can be ‘bought’.

What’s more, you need to determine who should be in the business and in what seats before you decide where to drive, and the insider has a head start there.” What’s more, this approach has a pernicious effect on the morale of other senior executives, who believe that if they want to get on they have to get out.

Nigel Nicholson, professor of organisational behaviour at London Business School, conducted a survey that found that individuals who change companies every three or four years advance faster than those who remain loyal to their organisation. “There is a horrible tendency in this country not to value insiders,” he says. “Individuals are rewarded for disloyalty, and people often find the only way to progress within their organisation is to wave a job offer under their boss’s nose. Invariably it is only when you get a market value on you that your worth is recognised internally.”

But there are times, of course, when a new broom is just what’s required to sweep away old cultures or signal a change of direction. Chris Brewster, professor of international Human Resource management at Henley Management College and at the University of Reading Business School, concedes: “Most organisations need a leavening of new blood at all levels in the hierarchy. You can have too little executive turnover.”

But he believes the least risky way to do this is to bring in outsiders at more junior executive levels and grow them in the organisation to see if they cut the mustard, rather than just dumping an outsider straight into the top job.

It’s a contention supported by HR guru Dave Ulrich in his new book Leadership Brand (see The Business Review, issue 19), where he asserts that leadership is not as easily transferable as many people would like to believe. “What worked in one setting might not work in another,” he points out.

But as one headhunter says: “You can’t grow talent for every conceivable contingency. There’s nothing wrong with bringing in an outsider provided you can prove that they are demonstrably better than any internal candidates.”

To this end, it is always helpful to benchmark internal talent against what’s available in the marketplace, he continues. “Armed with objective evidence companies are then in a position to justify any top appointment they make – whether it is internal or external – to both internal and external audiences.”

If press ads for heads of ‘talent management’ are anything to go by, at least some companies are starting to take talent management seriously again. Growing numbers of firms are assessing their executive talent and using coaching companies to help them develop it.

But smooth and planned succession of chief executives is the most important aspect of this talent management process, and the hardest to get right.

While long tenure is preferable to rapid turnover, it makes leaving that much more difficult. Recent corporate history is littered with examples of bosses who stayed on too long, including the late Anita Roddick at Body Shop and Sir Richard Greenbury at Marks & Spencer. The answer is to resist the temptation to see the firm as an extension of themselves and view their role instead as custodian of the corporate assets on behalf of the stakeholders.

Previously published in the Business Review, Impact Executives and http://www.onrec.com/newsstories/22545.asp