Proper succession planning ensures the right people are in place should the unexpected strike
The stakes may be high, from both financial and reputational perspectives, yet a recent survey by FT–ICSA Boardroom Bellwether found that only half (53 per cent) of FTSE company secretaries believe their executive pipeline had a sustainable pool of diverse talent.
Our experience carrying out independent board evaluations echoes the lack of focus many boards give to planning for orderly succession, both at board and senior executive levels.
Under the ‘if not, why not’ approach of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations a listed entities must explain why it has not adopted the recommendation of ‘ensuring there are plans in place to manage the succession of the CEO and other senior executives’
Although non-listed entities could be forgiven for thinking they can focus their efforts elsewhere on the boardroom agenda, succession planning remains an important element of helping every board (and senior management team) be effective.
After all, failure to plan for the orderly succession of your leadership team can mean your organisation is left without the right skills and experience to succeed — whatever your firm’s size and ownership structure.
Achieving smooth leadership succession can deliver significant returns, including the transfer of organisational know-how and maintained continuity in leadership culture.
More importantly, it allows organisations to deploy strength from the bench to capitalise on emerging business opportunities, or to mitigate the risk from a sudden absence of leadership or unexpected crisis.
However, the reality is that many companies make inadequate succession plans. This leads to lost productivity, negative culture and morale, and subsequent competitive decline.
Research in the US by Strategy&, the global strategy consultancy from PwC, in April 2015 found that companies forced to replace their CEO through poor planning forego on average $1.8 billion in shareholder value when compared with those that implement leadership changes through a planned — and thus controlled — chief executive succession process.
Fail to prepare
The problems often begin with failure to align succession planning with the company’s culture, business objectives and longer-term strategy.
The right leaders for today may not prove to be the ones needed for tomorrow, and developing a pool of talent with the skills and experience to allow an organisation to thrive in the future can take significant investment over several years.