Succession Planning at Senior Management Levels: Building Your Leadership Pipeline
Dr. Douglas A. Wilson, Next Solutions, Inc
Planning for a think tank's long-term success and institutional stability must include considering how to fill organizational leadership positions well before they become vacant. Here are seven steps to help ensure smooth transitions of responsibility and authority to a new generation of senior managers.
Grooming your next generation of leadership is not an easy task for any organization. However some do it much better than others. Some medium sized organizations produce next generation CEO's and senior managers in seamless succession. Others see turnover, chaos and disappointment.
Many think tanks are maturing in years and are now facing their first or second major transition at the top. What can policy groups learn from the private sector to avoid succession disaster in the future? I propose that if any policy group out there will follow seven basic steps, they will significantly increase the probability of a successful transition to the next generation of leadership. These recommendations are based both on personal experience over 25 years of consulting to medium sized operations and on documented research.
STEP ONE: The board demands to see a strategic plan on an annual basis.
The nature of many policy organizations is "Survive another year". Most then achieve just this - survival - but never more. A good board will ask the hard questions, "Where do you want to be in five years? How are you going to get there, and who has what accountability?" If management does not bring back a legitimate plan that can be sanctioned by the board, then the CEO either needs to be replaced , coached, or supplemented with other talent .
The board chair ultimately must insist on a plan and must insist that management makes progress against the plan. You cannot discuss a succession plan until you first have a strategic plan.
STEP TWO: The board and the top management have established, as a priority, the value of internal succession for the future verses going to the outside.
Why is this so important? Because without it, an organization will coast. The CEO develops a "someday but not today" mentality. Succession is placed on the back burner until the CEO announces the intention to move on or retire. If you are on a budget of less than two million dollars a year, you may think there is no way you can afford to bring someone into the organization before you leave or retire. You may, in fact, be right. If that is the case, then the board needs plenty of warning for when the CEO may be planning to leave the organization. It generally takes about three years of advance thinking to prepare for a successful transition. If you get your transition on the table three years in advance, then the CEO and board can plan together. You may want to hire a successor one or two years early. You may want to hire someone six months early.
We do know that private companies with the highest return on investment produce more internal candidates for CEO's and senior leadership than those who don't. If you do not start with a commitment to cultivate potential CEO's from within, it becomes very tempting to compromise on new hires. As the saying goes, "it takes a ton of ore to make a pound of steel." So it takes a lot of searching to find critical new hires who also have CEO potential.
What does an organization do if the CEO is within five years of retirement and there are no internal candidates? First, set up a small succession committee of the board. Second, evaluate the possibility of hiring outstanding top candidates and creating a role for them inside the organization. Remember, you still have time to identify up and coming talent. Third, reassess carefully the existing team. Insure you do not have biases that you believe disqualify specific people. If you believe specific people inside just might have a chance at the CEO role, then expand their responsibilities and their training in key areas and see how they perform. Finally, reevaluate how you got to where you are? Why don't you as an organization have more candidates to replace the existing CEO? Be tough on your assessment and don't let yourself rationalize!
STEP THREE: The board should spend considerable time reviewing what is being done in the organization for the CEO successor and for successors to senior management.
Some boards are too large for a full discussion on succession. However, if there is any discussion at the board level on an annual basis, then someone is ignoring a potential problem. Clear assessment instruments are a must. Generally the chair of the compensation committee or the chairman of the board oversees the process.
STEP FOUR: The CEO has set up a process to differentiate people at the top.
Who in the organization has potential to succeed you as CEO? Who is a strong player, but not a potential successor? Who is a C player and either needs to develop or be moved out? These questions must first be asked by the CEO and then by the board. For instance, a very effective COO may never be capable of being a highly effective CEO. If the board sees that the CEO has no internal candidates, then the board must ask, "What is the CEO doing here? Why don't we have potential candidates?" Sure, sometimes you want to go to the outside for a new hire to take the organization to a whole new level. If that is the case, then there may not be candidates available. My experience is that great leaders work at attracting and retaining great leaders who can replace them. Period. Sure, there are exceptions, but too often, organizations rationalize that they are an exception when in fact they have just not been strategic in their thinking and planning.
STEP FIVE: You evaluate each person on an annual basis. You take very good care of the people who are your potential successors and insure they are getting a variety of experiences. You set up a development plan for each person.
The Heritage Foundation has an annual review process for each senior level executive. Rewards and compensation are grounded in performance against specific goals. The policy group must also synergistically work with the marketing group - fiefdoms can crop up, but they are broken down. The culture supports a team effort to accomplish common objectives and team leaders are clearly accountable. Policy people at Heritage are given new team responsibilities that involve managing budget, people outside your department, and specific outcomes. Non-performers do not survive.
STEP SIX: The board recognizes that no organization is too small to have a back up plan for the CEO.
The board puts in place two plans: 1. an emergency plan if the CEO should suddenly be forced to resign, leave, or "get hit by a truck". 2. A long term plan where the board discusses the long term plans of a CEO and how he or she plans to groom a replacement from inside the organization. No founder is such a luminary that you cannot grow a successor from within. If the board tells themselves this false assumption, they should think seriously about whether they have rationalized away the hard work they need to be doing. Indeed, some luminaries are very difficult to deal with and do not like grooming successors that might compete with them or stand up to them. Under these circumstances they frequently cannot retain top talent. In that case, the board has the responsibility to find creative ways to secure top talent and insure the organization is able to retain them. One Senior VP of a well known CEO luminary in the software business told me that the best way for him to survive was to be in a regional office, away from the corporate headquarters in California. He said the CEO was like the sun - a little bit of sun exposure was good for you - too much and you got burned. Since policy groups generally don't have regional offices, the only way to work this is to insure top talent is given special, high visibility projects that also provide reports and exposure (face time) to the board.
STEP SEVEN: The board insists that management hire ahead of business needs. People are not seen as an expense, but as an investment.
Policy entrepreneurs will raise lots of money to push along specific ideas. Often, they do not focus on raising lots of money to hire specific people. A clear organization plan with a budget can inspire the right donors. People will invest in your future infrastructure if you make a compelling case. One non-profit was just given $100,000 over two years to hire 2 more people in key positions for their growth.
Entrepreneurs live and die by counting every dollar. The focus on preserving cash can blind the entrepreneur to the need to invest in the future. My experience is that the CEO reaches certain ceilings of complexity that are created by a personal bias and mindset. In order to break through to a new level of complexity and dynamic growth, the entrepreneur must rethink the whole mindset of spending money to make money. When Jack Welch was asked at a luncheon the key advice he had for hopeful executives, he said, "Invest in great people. If you don't think you can afford them, figure out how!" Generally policy entrepreneurs must surround themselves with business minded experts who have deep organizational experience and will work alongside them, build their confidence in the future, and help them to take the next step of investment in building a larger organization. If they do not, the organization will stay stuck at a specific level of growth and never really breakthrough to the next level of opportunity.
Conclusion
The steps outlined above are followed by a number of private companies I currently work with today. They are not unreasonable. However, the norm is that most organizations can only say they actually practice about half of these steps. In order to take your organization to the next level, ask yourself which step needs the most work? Why? What is it you will need to do to make sure something changes? Remember, to make a change will not be easy. It is always easier to live with what you have already created rather than set specific goals to make the changes necessary to insure a successful succession strategy. Those who do make the effort will be the leaders of tomorrow.
Dr. Doug A Wilson is CEO of Next Solutions, Inc, a strategy and organizational consulting firm.