Who's next in line?
Management succession planning is the name given to the technique for ensuring that there is sufficient talent in your organisation to bring in a new generation of managers when the time comes.
The staying power or tenure of company chairmen and managing directors is getting shorter. In the UK the average term of a chief executive is reckoned to be four years. In the US it can be as short as 18 months.
We are living in stressful times. Is better management succession planning the answer? Can it avoid the often long search for the right candidate? Management succession planning is about a systematic approach to identify, develop and plan talented people for key positions in the company.
Retailing may not be our direct concern, but it provides two familiar examples. Morrisons is one of the top four supermarket chains which showed courage in taking over Safeway, but clearly lacked top management succession, and lost valuable time until a new chief executive and successor to Sir Ken Morrison was appointed. At retail rival Tesco, top management succession had been well planned. Lord MacLaurin, who led the company's transformation and subsequently became chairman of telecoms company Vodafone, told me: 'We decided to appoint Sir Terry Leahy, who had lived through the changes at Tesco and had been responsible for some notable new initiatives. I am very proud of how he has been running the business ever since."
Where there is no obvious internal candidate for a top post, the solution is to recruit externally and use an experienced executive search firm. The alternative is recruitment advertising, but who at top level internally has the time to do the interviewing and the judgment to make the right choices? There are advantages in bringing in a successor designate with wide relevant experience, but there is much to be said too for a home-grown candidate who understands the culture and dynamics of the business and shows a strong degree of loyalty. He or she should have been tested running part or all of the company and on success levels in focusing on operational issues, delivering short term profits and longer term growth.
Lord Maclaurin's view is that key people from outside should be brought in when a business is failing, but if it is doing well you promote from inside, unless the business is very young and fast growing. At Vodafone, head-hunters were appointed to find a replacement for Sir Chris Gent, first chief executive. They trawled the field, came up with a number of candidates, who were whittled down to a shortlist of four. "The Board finally appointed one of our own non-executive directors, Arun Sarin, to succeed Chris when he retired," said Lord Maclaurin. The challenge of running a now very big company was clearly very different to creating and managing a giant company made up of many newly merged and acquired companies.
The lesson is to start succession planning early because talent is short and the best talents will look for other opportunities to reach their career horizons.
For leading companies this will inevitably mean that some of their top people will be targeted by rivals. The City will be concerned when a chief executive or managing director goes, but that's life. In the same way that a company loses one or two top people it will recruit key people from other leading companies or from young companies showing faster growth. The executives most at risk are likely to be the number two and three who become impatient waiting for the top job - as was the case at ICI a few years ago - or at least promotion to head up a new acquisition or major development. Management succession planning means that there are potential replacements for key people and that as the company grows or key people are lured away there are precise plans for continuity.
A savvy board of directors will look ahead five to ten years. Are the present chairman and managing director still likely to be in place? Are their replacements already in the company - possibly the production or finance director or an impressive younger manager? What sort of qualities and qualifications are likely to be necessary for the future managing director or chief executive? When should grooming start and should it include a term or two at a leading business school? Is the ideal chairman likely to be someone like Sir John Parker, the new chairman of Anglo American, the huge mining group? He is widely seen as the ideal chairman with a natural charm and gentlemanly manner expected of a City grandee, but with a steeliness forged in the Belfast shipyards of Harland and Wolff.
Looking externally for a new chief executive can start with a search in your own industry where one or two possible candidates may already be known to members of your board or appointing an executive search firm or headhunter. The candidates they put forward may have an impressive education and business record, but in today's often vast groupings they may be right for running part of the business but lacking total skills to head diversified companies.
Even boards of experienced directors can slip up selecting candidates who appear to have all the right qualifications, personality, vision, ambition and drive to take the company forward, but new responsibilities and authority soon reveal shortcomings. An otherwise incisive and decisive candidate may be unable to cope with the challenge of change facing the company. Another possible candidate with a brilliant scientific mind isn't used to dealing with investment decisions, diversification opportunities or with the City.
In challenging times with rising unemployment people do not necessarily feel safe in their present job - whether chief executive, manager or skilled operative. If they hear of opportunities elsewhere they are likely to be tempted. All the more reason, therefore, to identify internal successors for key posts and to provide the necessary range of experience.
In times of uncertainty, however, how could one plan ahead for jobs that might not exist next year? A recent Chartered Institute of Personnel and Development (CIPD) survey found talent management and, by association, succession planning becomes more, not less, important in an economic downturn: "During uncertain times it is more important than ever to know where key talent sits within an organisation and how to develop people to meet short and long term business critical issues."
Wendy Hirsh of the Institute of Employment Studies defines succession planning as a process by which one or more successors are identified for key posts and career moves and/or development activities are planned for these successors who may be fairly ready to do the job (short-term successors) or seen as having longer term potential.
A key point in the survey is that "the old succession planning was purely about organisational needs. The modern version takes account of the growing recognition that people increasingly need to make their own career decisions and to balance career and family responsibilities as far as possible customising moves to meet the needs of employees, their families and the changing skill requirements of the organisation."
Traditionally, people would have gained experience by upward moves, with accompanying increases in status and salary. Today that may not be possible because organisations are less hierarchical, with fewer management layers. Traditional fast-tracking created expectations of upward progression. Secondment opportunities also provide wider development opportunities.
Many organisations, according to the CIPD, have developed frameworks for technical and generic competencies relating to a broad range of skills and behaviours which can provide a useful starting point for evaluating an individual's potential for a senior role.
The problem arises when ideally those responsible for succession planning need to know as much as possible about the future of the business, how it is likely to change and develop and how such changes might affect the numbers involved and the skills they need to possess. It implies a close relationship at senior level between top managers responsible for shaping the future of the business, in particular the chief executive, and the human resources (HR) function, which acts as facilitator.
But how much can the chief executive know about fresh sector downturns, mergers or future acquisition of the business or by the company? Given these constraints, there is greater openness and transparency and secrecy. For example, advertising of internal jobs is increasing.
Succession planning, according to the CIPD, needs to be owned by line managers and should be actively led by the chief executive, but the HR function has a critical role in facilitating and supporting the process. "Any career move at senior level is a process of multiple dialogues in which a senior representative from HR collects views from senior line managers, testing, challenging and amending as the dialogue goes on. HR departments are also heavily involved in giving career advice and information to individuals and assessing and advising on their development needs."
There is no one model for succession planning, the CIPD admits, and there are no hard and fast rules. Experience shows that even before any steps are taken to establish management succession planning, whether a business is small but destined to grow, or already a large company determined to maintain its thrust, there must be clear leadership and strong management. Leadership is about vision and direction. Management is about planning, organising, motivating and controlling.
One of the most effective top teams I have ever worked with which started from scratch in the 1970s consisted of the chairman who had considerable achievements to his credit of buying and turning around failing companies, Napoleonic vision, ambition and drive; and two key lieutenants, one acting as chief executive and one as financial director. The three occupied adjoining offices, conferred a lot, but got on with their own responsibilities. Only the chief executive had about a dozen emerging divisional heads reporting to him and they were expected to appoint and train deputies able to take over - frequently, when their bosses were expected to spend weeks or months on managing new acquisitions.
Leadership, as Michael Armstrong, a renowned authority on the subject has written, focuses on people. "It is the process of developing and communicating a vision for the future, motivating people and gaining their commitment and engagement. Management, on the other hand, is concerned with achieving results by effectively identifying, deploying, utilising and controlling all the resources required, namely people, money, information, facilities, plant and equipment."
Identifying and selecting outstanding executives to succeed in top management roles has become one of the toughest problems facing companies. Readers may remember how it proved a huge recruitment problem for the former GEC.
Boards and their institutional investors prefer high-flyers already known to them. The lesson for aspiring top managers must be to aim for impressive performance and visibility, motivational qualities, strategic vision and management succession plans. Internal grooming is still the preferred route in many cases, but it takes a long time and the experience may be considered too narrow.
To help companies that may lack internal resources to groom potential high-flyers, some management consultants have launched programmes for strategic partnering in management development. Even where companies see management development as a vital function, but is it one of their core competencies or is help needed and available?
Can director/chief executive training programmes, including a popular one run by the Institute of Directors, really help create boards and individual directors to run world-class companies?
The ideal succession planning for high flyers is a combination of track record, internal grooming and achievement, backed by external management development or business school finessing, plus vision.