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Insights and Comment

9 October 2012

Succession Planning

by Mike Haffenden

Leaving succession planning until the last minute is likely to mean effective transferral of responsibility is not possible within the necessary time-frame. A forced, ill-informed or panicky decision could mean the business ends up in reluctant or unqualified hands.

With Ford rumoured to be starting succession planning for CEO Alan Mulally, due to retire by 2014, and research showing two-thirds of companies do not have a CEO succession plan in place, are HRDs taking enough of an active role in king-making?

Choosing a CEO is one of the most important levers for a board in overseeing strategy, risk, ethics and sustaining the share price. The stakes are high in making a sound choice. Sadly, much collateral and reputational damage tends to occur before a board recognises and rectifies a mistake.

Evidence suggests that many boards are ill-prepared to make the best choices:

  • Relatively few have a practical CEO succession plan
  • Rarely do chairmen or non-executives have the qualifications necessary for top-level recruitment, such as psychology or formal selection training
  • While ‘old boy networks’ are generally discredited, they can get replaced by over-dependency on head-hunters whose job stops on appointment rather than the successes outlined after 1, 3 or 5 years
  • Too often it’s hard to discern strategic criteria shaping the choice. Rather, boards pick an individual and then the strategy follows – which is inherently de-stabilising.

Where does the top ‘people professional’ figure in all this? That varies wildly too.

CRF’s recent research, Planning for Succession in Changing Times, shows that HR leaders make a difference to CEO succession processes where they:

  • Have the business nous, political skills and gravitas to ensure that boards are well prepared, strategically and personally
  • Provide real professional expertise in managing selection, assessment and head-hunters
  • Ensure internally both a robust pipeline of successors and a mature approach to career management at the top – especially the art of honest, robust conversations with rival candidates
  • Have the respect of both CEO and Chairman when guiding them in making tough personal decisions.

However, CEO succession stories in even some of the biggest corporations demonstrate that the board-HR leader relationship is not what it should be. Large financial institutions have been particularly inept – e.g. AIG, HSBC, RBS, HBOS and others – where HR has either been ignored, ineffective or compromised.

A warning note, therefore, for both boards and investors. If you want sound succession, make sure the HR leader is fit-for-purpose and is capable of inputting to this most important of causes.

*First published in HR Magazine, October 2012.


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