Two recent examples in the UK have highlighted the need for good succession planning. GlaxoSmithKline (GSK) announced that Sir Philip Hampton would succeed Sir Christopher Gent as GSK’s chairman. His experience in a similarly tightly regulated industry as chairman of the Royal Bank of Scotland makes him a stellar choice. On the other hand, Tesco’s finance director Mr. Stewart resigned in April and Tesco had to beg the current employer of the incoming finance director to allow him to resume at once. Also, Tesco’s chief executive, Philip Clarke was ousted in July necessitating the need for his successor who was billed to join in October to resume in August.
Succession planning entails ensuring that employees are recruited and prepared to fill key roles within an organization upon the exit of the current leader. This exit may be voluntary in the case of retirement or involuntary in the case of death or a sack.
Succession planning helps to mitigate the key man risk that most small organizations face where the exit of the founder heralds the failure of the business as all systems are inextricably tied to the presence of the founder i.e. obtaining contracts occur only through the relationships of the owner or payments for essential processes may only be authorized by the owner-manger. Succession planning guarantees that the business will outlast the owner.
For large corporations, succession planning helps to ensure that an organization continues to be steered in the right direction, and that the new leadership has the capability of maintaining current organizational strengths while developing new competencies for navigating the dynamic business world.
Succession planning is not only essential for the chief executive role but is also necessary for other key roles where absence of a key personnel would limit the smooth functioning of an organization. Such roles may include that of the chief financial officer or accountant in the case of an SME.
Succession planning should be the responsibility of the board of directors who should proactively design a talent management system to identify key talent both within the C-suite and below that. The board should be responsible for drafting a required profile for the chief executive role before a vacancy arises and for developing a comprehensive leadership development program to prepare possible successors.
An organization may plan to fill key roles internally or to draw from an external pool of candidates, whatever the case may be, the policy on succession planning must be clear and transparent. There is nothing that damages morale quicker than a senior executive who believes that he has been unjustly passed over for promotion.
A good succession plan assures stakeholders such as investors that their interests in an organization will not be jettisoned if a present CEO leaves and that the going concern of the organization will not be derailed due to the exit of key personnel.
In sum, organizations should carry out an audit to determine if they have a good and reliable succession plan as the best time to plan for it is before the need arises. If you don’t have one, it should be on the agenda at the next board meeting.