Succession planning: A guide

Succession planning: A guide

Thursday 18th July 2019

Businesses and public sector organisations are increasingly recognising the importance of succession planning, both within the senior executive team and at board level.

We advise several clients on succession planning, and it is becoming more of a focus for ambitious organisations who want to future-proof their operations.

Here we present the Goodson Thomas guide to everything you need to consider when it comes to future-proofing your organisation.

Why do we need a succession plan?

The skills, knowledge and experience required to steer an organisation effectively will inevitably change over time in response to market developments, opportunities and challenges. Board succession planning allows directors to match the organisation's future needs based on the long-term vision with the best-qualified directors.

Taking a long-term, strategic approach to your future talent needs is crucial to the sustainability of an organisation. It can help ensure a strong pipeline of talent ready to step up to the plate when the time is right.

Also, the average age of UK non-executive directors is rising, exceeding 60 for the first time in at least two decades, in spite of a record level of first-time board appointments. If your organisation is to face the challenges presented by AI, automation and cybersecurity, the experience of the younger generation could be as valuable as the "grey hair" on your board.

On a diversity note, while we have seen improvements in female representation (women now account for 34.7 per cent of UK non-execs, up from 16.7 per cent 10 years ago), there's still a long way to go.

With just 8.9 per cent of UK executive director positions held by women, overall female representation is lower in the UK than in France, Germany, Italy and the Netherlands.

The most successful organisations ensure there is an optimal mix of people, skills and knowledge on their board. A succession plan should address how refreshing your board can help inject a much-needed fresh perspective from a range of diverse backgrounds. This will enable you to serve your markets or audiences more effectively.

Also, it's essential to plan for the unexpected, no matter how well-settled or high-performing your current team. There are circumstances where a sudden departure may occur, for example, death or resignation, and it's important to have a plan in place for dealing with such an occurrence.

How should we go about planning for board succession?

A regular skills audit of the current board and comparing what you currently have with your predicted future needs will highlight any gaps and help shape your succession plan. A board skills matrix is a great way to map the mix of skills and diversity represented by your board.

We highly recommend that boards of larger organisations actively keep a live list of potential candidates and monitor it regularly. The availability of highly sought-after directors can be limited, so keeping in touch with potential future candidates can pay dividends. Of course, this takes time, but a good executive search firm can manage this process for you.

When it comes to chair succession, common approaches are to appoint a deputy chair, identify likely successors from within the board or to appoint a new director with the expectation that they will become chair within a specified time frame.

The advantage of these approaches is that the new chair is familiar with the organisation and can build good working relationships with other directors by the time they become chair. However, having an 'heir apparent' can alienate other directors when handled poorly. For organisations that are performing poorly, appointing an external chair can be a signal to stakeholders that significant change is on the way.

How do we succession plan for our CEO?

Just as with your board, the skills and knowledge needed by the executive team to drive the organisation forward will change over time, so succession planning should be a regular agenda item.

The succession plans for the CEO and senior executives should consider both short and long-term scenarios.

In the short term, it must be communicated clearly to those people who will step in to manage the organisation when a CEO takes leave (both planned and unplanned) or leaves unexpectedly suddenly. Appointments you make in the short-term are called "acting appointments". You also need a longer-term plan for permanently filling the vacancy of a departing CEO. Your new CEO could be an internal or external hire. Smaller organisations often lack the depth in their senior management team to have even one candidate, and in such circumstances an external appointment is unavoidable.

The advantage of internal appointments is that the successor is already familiar with the organisation so is ready to hit the ground running. Boards should work with the CEO to review the performance and development plans of potential future candidates. They can then ensure that they are gaining the skills, knowledge and experience that will be necessary for a future CEO. An excellent way for the board to monitor potential internal talent is to invite senior executives to present to the board from time time.

External appointments are often made when the board wants to change the strategy, culture or direction of the organisation. While such change is sometimes necessary, it's easy to alienate key staff, possibly resulting in them leaving the organisation, denting confidence amongst stakeholders.

As with succession planning for boards, it's crucial to have a detailed plan in place. External executive search consultancies can advise you and guide you through the process.

For more information on how we can help you shape your succession plan, click here.