Most Firms Not Ready For CEO Departures

by CXOtoday News Desk    Mar 10, 2014


IT companies continue to witness top management transitions including CEO departures every year. How many companies are prepared to deal with CEO departures. Probably not many, says a new study from the Stanford University researchers who reveal that only 25% have an adequate pool of ready successor-CEO candidates at their companies. Less than half of the businesses have a formal process for developing successor candidates for key executive positions.

“The corporate leaders we interviewed all believe that succession planning is vitally important. But the majority do not think that their organizations are doing enough to prepare for eventual changes in leadership, nor are they confident that they have the right practices in place to be sure of identifying the best leaders for tomorrow,” said David Larcker, co-author of the report and a Stanford Graduate School of Business faculty member.

What ails succession planning

The research shows that part of the problem comes from a lack of preparation. Organizations often fail to make the connection between the skills and experiences required to run the company and the individual candidates who are best suited to eventually assume senior executive positions. In addition, rather than looking for someone from inside the company, some believe it is simpler to choose an outsider. This way, the organizations believe, they can outsource the succession process to a recruiting firm who will source candidates, conduct assessments and facilitate a recommendation.

Companies agree that succession planning involves the combined efforts of the board of directors, the senior management team and support staff, such as the human resources department. However, most of those surveyed failed to structure an evaluation process that formally assigns roles to each of these groups and requires their participation.

Businesses run into an additional problem when they treat succession planning and internal talent development as distinct activities, said Scott Saslow, founder and CEO of The Institute of Executive Development. Instead, businesses should treat these processes as one continuous program to gradually develop leadership skills in the organization.

What needs to be done?

To improve organizational succession and talent-development programs, the researchers offer several recommendations, including:

- Assign ownership and roles: Organizations frequently fail at succession because they do not assign ownership and accountability to the process. An independent chairman or experienced outside director should take primary responsibility, he said. Ideally, this will be someone with considerable experience guiding CEO-succession efforts. Organizations should assign specific roles to other board members, the CEO, senior executives and support staff, holding each accountable for measurable results.

- Cast a wide net: Because an organization and its strategy constantly evolve, the skills needed to run the organization in the future might change. Companies should evaluate executive talent in terms of its ability to meet future, and not just the current needs.

- Be comprehensive and continuous: Succession should be treated as a continuous practice, whereby management and the board prepare for transitions at any time and at multiple levels throughout the organization.

- Get strategic assistance when necessary: Companies should survey the practices of other corporations and integrate those policies that are best suited to the business’ current structure and situation.