April 9, 2018 Written by: Richard St George-Yorke

Whatever the size of an organisation, the repercussions of poor succession planning can be enormous. It is defined by the CIPD as “the process of identifying and developing potential future leaders or senior managers, as well as individuals to fill other business-critical positions, either in the short- or the long-term.”

Avoiding the issue

According to a recent article by the Financial Express, succession management is very pertinent right now. As investors get increasingly impatient about RoI, dissatisfaction focussed on leaders has led to the average tenure of CEOs globally reduce from six to 2.5 years – a significant shift.

It is an inevitable fact in business that staff turnover is linked to the natural cycles of industry, but this is especially true at senior-leadership level. Understandably, some CEOs do not give it the urgency it deserves, owing to various factors:

Avoiding retirement – working at the top of an industry comes with great pressure and responsibility but also reward and recognition – the gear shift from this to quiet retirement is not insignificant.

Personal legacy – a slightly darker motivation can be a desire to preserve legacy. Nobody wants a successor who makes a bigger impact than them.

Unjustified (or justified!) paranoia – a change in executive leadership is a sensitive issue. Board motivations could be questioned when personal desire get in the way of business planning.

Simple lack of haste – there are always more pressing business requirements that need immediate attention. Strategic planning takes time and focus, both in short supply.

The absence of a plan

In a new Korn Ferry survey of 740 finance chiefs, “only 34% said a succession plan is in place for their role […] 81% of the respondents said there is no internal, “ready-now” successor.”

Over in Japan, it’s a similar story according to the recent survey by the Ministry of Economy, Trade and Industry. Among companies on the Tokyo Stock Exchange’s first and second sections, 48% said they have no written succession plan in place for CEOs and other top executives.

As executive and leadership search specialists, we at TS Grale spend a lot of time working with clients around top-tier future planning. There needs to be a balance of attracting highly-talented individuals from outside an organisation for senior positions and promoting from the pool of talent within.

For organisations to succeed, it is vital there must be a succession strategy. Here’s an example of why planning for change at Director and CEO level matters.

The Airbus scenario

In December, the Airbus Board of Directors declared a top management succession plan as several executives announced they were to step down. After 12 years at the helm of the European aerospace company, Tom Enders indicated that he did not wish to seek another term as Chief Executive Officer (CEO) stating:

“The privilege of serving this great company comes with a responsibility to support a smooth succession when the time is ripe. […] It’s been a long and exciting journey but now is the time to initiate a leadership change.

“We need fresh minds for the 2020s. In the coming 16 months, I will work with the board to ensure a smooth transition to the next CEO and a new generation of leaders; I will focus on our business challenges; and I will further progress and strengthen our ethics and compliance programs.”

Sounds good. However, Fabrice Brégiet (Airbus COO & President Airbus Commercial Aircraft) – seen as the heir apparent until now – also informed the Board that he did not want to be considered for the CEO position and has since left Airbus.

This surprise announcement followed the departure of the now former Airbus CTO Paul Eremenko who took up the post of SVP and CTO of United Technologies Corp last year AND the retirement of legendary Airbus salesman John Leahy.

Even the most robust of succession plans would be hard pressed to accommodate this amount of executive change! Media speculation and political comment led to Airbus issuing further statements stressing that the CEO replacement would be led by an independent committee backed by external headhunters and submitted to shareholders at the annual meeting in Spring 2019.

The impact

A few years ago, a study of the world’s 2,500 largest public companies showed that those who “scramble to find replacements for departing CEOs” relinquish an average of $1.8 billion in shareholder value along with tarnishing their reputation. Putting it simply, poor succession planning can cost a lot of money.

Unlike many organisations, however, Airbus does have a succession plan. Many SMEs can end up getting sold or going under as a result of not addressing the thorny issues of succession planning, internal progression, and executive talent development.

For me, without these vital plans in place, long-term business stability will always be unattainable.

Does your organisation have a succession plan?

Is it harder for a family-run company or a close knit executive team?

Let us know your thoughts…

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