Recession-Proof Lessons of Succession

Each day financial and global revelations expose another level of upheaval causing everyone to question whether we've hit the ultimate bottom.  This uncertainty can resurrect our survivor mentality, causing us to cast aside "non-essential" people and processes while retreating to only essential business cornerstones.  We might also discount or underestimate the impact of trends evident prior to the crisis, e.g. the pending retirement of millions of Baby Boomers, breathing a sigh of relief that we've dodged these bullets.

Those organizations that have formal succession plans already recognize their value in these tough times.  For those who have deferred the creation of talent management and succession planning or suspended such planning discipline, incomplete workforce intelligence may be driving short-term decisions that could result in failed long-term business strategies.  Untested leaders may be struggling to lead in volatile business environments to which they've never had exposure. 

Formal succession planning as part of overarching talent management

v      Allows for active management of turnover rather than downsizing through uncontrolled attrition; when tight financial markets force organizations to return to lean operations, having the right people with the right skills in the right place becomes non-negotiable

v      Provides an essential inventory of institutional and operationally critical knowledge that can fuel proactive plans to transfer or retain organizational information and correct individual skill mismatches

v      Sustains cost effective recruiting efforts by targeting critical organizational skill gaps and allowing hiring managers to pick up good talent opportunistically rather than strictly enforcing hiring freezes

v      Offers time to create anticipatory plans for workforce trends that may only have been deferred by crises; while delaying formal retirement, ultimately Baby Boomers will be thinking differently about how their work will fit with their remaining life plans and

v      Creates credible assignments for high potentials to "test" how they will perform in the tough times as well as in the best of times. 

Perhaps, businesses and industries that have operated successfully in cyclical environments offer the best practices for succession in these uncertain times.  The most telling outcomes of planning through a disciplined process for "ABC" were a double digit increase in share value in the first year under the new CEO, the retention of critical internal and external stakeholders and a seamless operational transition.  However, given the unforeseeable financial crisis, perhaps the most valuable outcome is the resilient organization that remains as successful today under new leadership as it was under the old. 

 Preparing to Plan  

"ABC Company" simultaneously inherited a 140-year-old family-owned company while creating a start-up employee-owned operation.  Consequently, certain decisions regarding governance, made at the time of the buyout from the family, needed to be redesigned to facilitate a series of decisions that were envisioned over the next 4-6 years.  A Board made up entirely of internal managers, many of whom were potential candidates for the CEO role, was transformed into a Board composed of both internal and external directors with clear charters for succession among other organizational charges.  The collaboration among the incumbent CEO, the Sr. VP of Human Resources and the external members of the Board served as an exceptional think tank as we pioneered succession in an employee-owned company.   

HR's Guide to Successful Succession:  Start with Board Governance.  Establish clear jurisdiction and credentials for those who have the critical task of succession planning and executive selection.  Determine if any By-Laws or Charters create conflicts or obstacles to Board execution of talent management decisions. 

Don't shortcut the process.  No one learns the CEO role well in a few months when the incumbent took a lifetime to master it; the better the planning and the timeliness of implementation, the less you will stress the resilience of the organization.  A well-implemented succession plan should consider how well the company weathers the transition, not just how well the incumbent and candidate fare. 

Planning for the Person  

Just as with any two-week notice, co-workers, vendors, suppliers, direct reports begin to reshape their work and routines once the CEO has made public their intention to retire.  Although the status and prestige of the title may not tarnish with those outside the organization as quickly as it does internally, the process of suddenly turning into an ensign of industry instead of a captain is demoralizing. 

The individual is also required to think about benefit and administrative decisions they may not have considered since their first day of employment.  For an executive, these decisions have typically been delegated years ago to their spouse, their family and even their Human Resource Department.  Nuances forced by a change in employee status can have serious consequences on healthcare, stock, or pension payments.   These concerns become especially apparent if the CEO has a younger spouse, extended families or other under-age dependents. 

HR's Guide to Successful Succession:  Think very carefully about when to make public a CEO's decision to retire.  Emotionally, incumbents have seldom considered how changes in their work will affect relationships at home or with peers, the role work has played in maintaining their self-esteem and how they will fill their time if not consumed by an executive role.  While CEOs are trying to put their self-interest in perspective in order to do what is best for the company, there is likely to be some "buyer's remorse" and enlightening but frightening personal insights as the process unfolds.  Organizations like Wisdom Worker Solutions offer holistic, life and pre-retirement planning, focused on non-financial preparation, to help people assess their mental, physical and emotional preparedness for a successful life after exiting a prestigious role.   

Reversals of fortune, uncertainty in their investment portfolio and the ability to bridge the gap from the company's health plan to Medicare all need to be weighed and agreements outlined.  This is especially critical if the Company has no retiree healthcare benefits. 

The Replacements  

Whether promoting internal candidates or hiring from outside the organization, companies need to establish clear qualifications for the CEO role.  Learning to lead in a 30-year maintenance business cycle proves to be little help when assigned to a small, aggressively growing start-up operation.  Cloning the current CEO can certainly be the ultimate compliment or a recipe for failure if market conditions are demanding that a company make radical adjustments to remain competitive.  Additionally, loyal and knowledgeable employees who have been working all their lives for the ultimate opportunity should be given an indisputable yardstick for how they will be measured as a candidate for the CEO role. 

HR's Guide to Successful Succession:  Organizations still have a preference to "grow their own" executives according to a recent study by Heidrick and Struggles.  Success factors should consider the company's business direction and strategies over the next 3-5 years.  This exercise will be particularly critical should all internal candidates fail to perform or withdraw as candidates and the company is faced with initiating an external search.  "ABC's" competency model allowed them to shape candidate assignments over a period of more than a year to "test" candidates in performing at a CEO level and develop skills to close identified performance gaps. 

Select a well-qualified consultant as the candidate assessor.  If the assessment process has been fair and conducted by an objective professional, employees are more willing to accept, not only their individual verdict, but also the ultimate CEO selection.  Employees who are rejected after the initial evaluations will also want to understand how that information will be interpreted to make future career decisions. 

Planning for Everyone

Obviously, the entire Company is "invested" in the outcome of any replacement or succession plan.  "ABC's" strategic communication plan for succession initially focused on keeping the entire Board and candidates informed of the process.  Then the strategies expanded to include employees, vendors, key clients and suppliers such as banks and risk management stakeholders, potential targets for merger and acquisition and finally, the general public.  The plan's timetable was coordinated with other corporate events and benchmarks such as the annual stockholders' meetings and "ABC's" 150-year celebration.  These are natural times when employees speculate that rumors will either be confirmed through important announcements or allowed to linger if unfounded. 

HR's Guide to Successful Succession:  Create a strategic communication plan that includes all stakeholders and consistent messaging for every group.  Anticipate what information and just how much needs to be communicated on a timely basis to keep the organization productive.  Planners want to make sure key employees don't opt to leave the company because of high levels of uncertainty about the process or the outcome.  Finally, make sure the candidates themselves are communicating consistently.  No candidate should be representing to the organization that they have been selected when, in fact, the process has not been completed.  Don't be afraid to talk with key contributors personally throughout the succession process.  Reassure all employees about the discipline that has gone into the process and how committed the Board is in being fair and objective. 

Transition Planning

Maintaining discipline, the willingness to adhere to a process or follow through as agreed, in this stage of succession planning is one of the toughest aspects of the entire process.  And yet, this is one of the most critical steps in a successful implementation.  "ABC Company" created a 90-day and a 6-month plan that were subsets of a year-long transition outline.  Once again, the incumbent, the "CEO-Select" and the candidates that weren't selected will go through a series of emotions as they come to terms with the now public outcome.