MANAGEMENT SUCCESSION PLANNING: BE LIKE A BOY SCOUT AND BE PREPARED

By G. A. FINCH

A client recently asked for advice concerning its creation of a management succession plan.  Given the recent tenth anniversary of 9/11, it was a timely request for assistance.

Who Is Doing Succession Planning

I wanted to update my knowledge of the best practices for management succession and started my due diligence by canvassing four Fortune 500 general counsels, a CEO of a manufacturing company and three management consultants on their management succession plan templates.    This was not a very scientific sampling, but the polling  gave me a sense of what companies were doing or not doing concerning planning for management succession.

Only one of the four Fortune 500 companies had a management succession plan. The other three and the non-Fortune 500 company did not.  Two management consultant companies did not have any templates or experience advising companies on succession plans and the third was working on developing one.

Of course everyone contacted thought it was a good idea to have one and some felt a little sheepish in admitting to not having a plan.  A few of the ones who did not have a management succession plan said that there were occasional conversations at board meetings about resident executive “talent” that could be potential candidates for CEO succession.

Risk Management

We all have heard about major companies whose CEO became seriously ill or suddenly died.  We also have heard where top layers of management have been decimated by catastrophic incidents like the 9/11 terrorist attacks on the World Trade Center Towers.   Hurricane Katrina and the Japanese earthquake/tsunami nuclear power plant meltdown are additional reminders of how unanticipated disasters can wreak havoc on an unprepared company and its region.

Stockholders, investors, employees and major customers certainly want to know what happens in “what if?” scenarios.

Mechanics Of Doing A Plan

In my updated research on management succession plans, I found that there are three avenues a company can take: 1) do its own plan; 2) buy software to do a plan; or 3) hire an outside consultant to help create a plan.

Basically, there are three degrees of planning: A) create a list of successors for important positions and ensure the successors have the leadership/management skills that are aligned with the mission, culture and business strategy of the organization; B) develop an ongoing spreadsheet identifying, evaluating, and training/grooming executives and employees in multiple layers for many critical positions in the company;  or C) set up an elaborate system of back-up infrastructure and contingency plans for command and control in the event of emergencies.

Any one of the above degrees of planning requires a process that ultimately results in a document to which a company can refer when there is an incident of succession.

Do What You Must Do

I suspect many executives and corporate boards feel about succession plans the way many individuals feel about estate planning:  it is an unpleasant reminder of one’s mortality that can be put off until tomorrow.  No one likes to dwell on the time when one will not be around or no longer relevant.

I would wager that when Steve Jobs stepped down from Apple, there was a succession plan in place to ensure a smooth transition.

Does your company have a succession plan?  If not, when?

Executive leadership is doing the tasks that others will not or cannot do.

P.S.: On September 21st, I was at a breakfast seminar on “evaluating board members” and it was pointed out by the panelists that boards of directors are notorious for not doing succession planning.