Making Leadership Transitions Work
Years ago I had assumed that the practice of succession planning within large and small, public and private organizations was deeply process-oriented and implemented with serious commitment. After all, the longevity and success of any business is fully hinged on the premise that strong and experienced leaders would have to take over from the existing entrained leadership to ensure an effective transition. So, you may ask, “is this happening and what is the success rate?” The statistics and details are not only thought provoking, but unfortunately quite sobering.
Lets start with a few scenarios that may either sound familiar to you or even directly represent where you are in your career. Maybe you are a small business owner contemplating retirement. Or a business owner with the desire to transition your company to a son, daughter or in-law. Or an executive planning a transition following a promotion. Or a board member on a nominating committee responsible for proposing new board candidates. These scenarios will absolutely trigger varying levels of thought and action on succession planning activities. But where should those efforts be focused and what actions ensure success?
Business owners have a unique and somewhat challenging responsibility with succession planning. Many business owners feel forced into weighing the decision of whether to sell their business or transfer leadership to a designated family member. This decision is typically not an easy one due to concerns of dedication, focus and experience. Additionally, in scenarios where succession planning may include outside candidates, there are typically concerns regarding the level of business relationships and ‘connections’ that will benefit the business – after all, the business owner has built these relationships over their lifetime and they are typically focused within their industry. I have been asked by business owners many times which scenario makes more sense: sell the business and share the proceeds with their family members or turn over the business to a family member to run as a long-term annuity. Many business owners secretly lean towards the former as they don't believe their potential successor has what it takes. (Note: for those numerous business owners that I advise on this topic, rest assured that I will not mention your name as I don’t want to be responsible for tearing your family apart with this revelation). This decision is even more nerve-racking based on the large amount of data available confirming that 70% of second generation businesses fail and that number increases to an incredible 85% failure rate by the third generation. These are not great odds and do a disservice to a business owner’s legacy; the importance they place on their legacy is something they may or may not admit to, but major concern for this is present in most cases.
Executives and Board Members are not immune from the responsibilities of succession planning, either. Many mid and large-size corporations claim they have a detailed process for succession planning, however, it is rarely followed and frequently not successful. Many of these processes typically have provisions for identifying and developing internal candidates – this is good - but when the process is boiled down to its core components it reads more as an immature and standalone checklist for candidate evaluation rather than a dynamic and adaptive process that simultaneously assesses the needs of the organization. This checklist may generate what is viewed as a perfect fit from a ‘professional capital’ viewpoint, but does very little to evaluate the candidates ‘behavioral predisposition’ when working within an executive team. We have all experienced this before – a person who is very smart, but has zero leadership or group interaction skills – and it is devastating to a strategic team.
A 2014 Report on Senior Executive Succession Planning and Talent Development from the Stanford Graduate School of Business reported that despite the increase in board director attention to executive succession planning, most Board’s succession planning processes “are not transparent and may be less systematic than you would expect,” thus, once again ignoring the potential impact that the candidate’s behavioral attributes can have on the effective functioning of the team (including the board team or the C-suite team). This may generate toxic effects on corporate financial performance and can also result in expensive terminations. Research by Dr. Solange Charas, who has recently joined Integral Board Group, has shown that boardroom and C-suite ‘Team Intelligence’ is strongly correlated to corporate financial performance and explains up to 20% of a firm’s bottom-line performance. Using an unbiased and data-driven assessment tool developed as part of her research, Dr. Charas profiles the existing Board as well as C-suite team and identifies the required behavioral characteristics of potential new team members to maintain or enhance Team Intelligence. The identified behavioral attributes can then be incorporated in recruitment / development criteria to generate higher levels of succession achievement eliminating the guess-work on candidate fit.
So why is it that succession planning seems so hard to do well? What makes this so elusive? One would believe that the act of succession is not that difficult. Even the term succession planning has the word ‘success’ built into it! All of the research mentioned in this article points to one fact:
Effective succession planning must include both a ‘professional capital’ component as well as a ‘behavioral predisposition’ component.
One is useless without the other. (As is the case with all rules, there is one exception… sort of. In early 2014 a Hong Kong venture capital firm named an algorithm to its Board of Directors. Yes, a ‘formula’ now holds a board seat. Do you feel vulnerable? Unless you are assigning robots or formulas in your leadership positions, the preceding rule still applies.)
Now, let’s make this actionable… Proper succession planning should include these important considerations:
When it comes to succession planning, these consideration areas can help shift your organization from an environment of chance to a well-planned and methodical practice.
For a free 30 minute session focused on:
- Validating your Succession Planning thoughts and concerns for your company,
- Successful tips on how to evaluate potential candidates,
- The most impactful next steps for your organization,
Schedule your free session via email (firstname.lastname@example.org)
Mark A. Pfister
Chairman & CEO
Integral Board Group
Integral Board Group assists business owners through a 3-phase succession planning process supporting pre-transition, transition and post-transition support activities ensuring a positive and long-term outcome. We also support executive succession planning through strategy creation and transitional support.
Previous Relevant Newsletter Articles:
June 12, 2014: Boards And The Impending 'Baby Boomer' Retirement Effect
May 13, 2014: How Does a Proper Board Benefit the Investment Community?