Success with Succession

Success with Succession

As companies grow, succession planning can be a vital but overlooked element of business strategy. Ensuring a smooth handover brings a number of benefits; from keeping staff members motivated, to maintaining continuity with long-term strategy, and making sure that customers continue to receive the service that they expect

What should a succession plan look like? What, for example, are the merits of promoting from within the company, as opposed to hiring external talent for top jobs?

“If continuity is important then an internal candidate can often be the safest choice,” says David Thorp, managing director of the Security Institute. “However, closed systems seldom grow into the most vigorous organisms. An outsider can bring fresh perspective, new practices and a different vision.”

There are pros and cons to both internal promotion and external head-hunting. “Internal promotions reward staff loyalty which is something not to be underestimated,” adds David. “For employees, seeing ‘one of our own’ climb the ladder is important psychologically and is likely to be rewarded by maintained loyalty and satisfaction.”

Bringing someone in from the outside, however, inevitably leads to a period of change and the embedding of new ideas and ways of doing business. This can have a negative effect on morale within an organisation, creating uncertainty and disquiet.

For David Thorp, the balance is to take a medium-term view of the appointment: “If the intention is that radical change be made and the company is prepared for a period of disruption in the short term in order to get there, then an outside candidate is likely to do the job more effectively than an internal candidate. However, the risks are not to be ignored.”

Jimmy McLoughlin, Deputy Director of Policy at the Institute of Directors, argues the case for transparency when considering external candidates. “Make it clear to people that they’re being considered; don’t have too much secrecy. A good example of this is the Chair of BP, Carl-Henric Svanberg, who might tell people a year in advance that he’s thinking of approaching them. If he sees a regulatory issue ahead, Svanberg thinks about someone who would be fit for purpose and contacts them openly to tell them they are being considered. That kind of approach gives people a clear idea about where the company is heading.’

Jimmy is strongly in favour of external recruitment as it brings new blood to the company and notes that there is a psychological element to internal promotion: “If the CEO or Chairman comes from within it can simply look lazy, unless you’re absolutely sure it’s the right person for the job.”

Keeping and promoting key talent

Increasingly, boards are becoming aware of the importance of setting up a succession plan. Claire McCartney, research adviser at resourcing and talent planning at the Chartered Institute of Personnel and Development (CIPD), reveals that 50% of organisations now say that talent management is prioritised by their CEO. She says: “Having been through the financial crisis, boards are more aware than ever of the potential risks that face their business – including those of not having a proper succession plan in place.”

When it comes to thinking about skills, however, Claire says that many organisations are focused on the here-and-now and struggle to look much further ahead. In previous research by CIPD, only 6% of organisations look five years ahead when it comes to workforce planning.

Despite those concerns of looking lazy, many companies understandably seek to promote from within their own ranks. To succeed at this, they need to retain talent and the innovative and HR-focused company can do this in several ways.

“Regular appraisals and mentoring programmes are essential to identify and nurture talent that should be given the opportunity to grow,” says David Thorp. “Give talented people the opportunity to work on projects that involve them in leadership tasks; not just their technical skills. Encourage them to attend training courses or development programmes that focus on areas where they aren’t as strong. Find people for them to work with who have complementary skills and who can form an effective and supportive team with them.”

Growing pains

As a company grows, however, it will identify several risks of succession planning; talent might leave the company despite having been trained up for leadership, for example. How can they mitigate this? “We’ve moved away from the idea of a job for life and people’s careers are much more fluid,” says Claire McCartney. “Organisations don’t want to hold on to people at all costs but investing in their development and creating a clear career path for them means that they are likely to be motivated, stay longer with their organisation and look more favourably on it; potentially recommending it to others and even considering re-joining it in the future.”

David Thorp argues that if you develop talent and then run out of opportunities for them, it’s time for them to move on and companies shouldn’t try to prevent it. However, he argues that “a company that is seen as a strong developer of talent and an investor in people is a desirable organisation to work for in the first place”. The answer can be to try to make the problem part of the solution. “Encourage a constant inflow of high calibre people who will populate your organisation until it’s time for them to move on when the internal opportunity dries up. Ultimately, don’t be afraid to lose people as long as you know more talent will want to come to work for you.”

The key, says Tom Thackray, head of enterprise at the Confederation of British Industry, is looking ahead and embedding that attitude at all levels. “It should be the responsibility of all leaders to spot future talent, but good succession planning is not just about who is doing well in their current role but who has the potential to succeed in more senior leadership roles.”

Succession planning in family-owned businesses

Passing on the business from one family member to another can be fraught with problems. The classic concern is that emotions and long-established ties can disrupt sound business judgment. Consider a natural succession from parent to son or daughter in SMEs.

“Sometimes, the person at the top doesn’t want to go – even though the time is right,” says Eddie Obeng, visiting professor at the School of Entrepreneurship and Innovation at Henley Business School. And with the best will in the world, the person who’s lined up for the job simply by being a family member, may not be the best person to promote.

“The answer to this is to take emotion out of the equation,’ adds Eddie. “Try to avoid all power residing with one person. These days many family-owned businesses appoint non-family execs. This stops people wielding too much control when they don’t want to retire but the business needs a new direction.”

He argues that the situation is workable if the company is growing significantly, but is more complex if it is struggling. “Successful people work hard,” he says. “So when the time comes, they often don’t want to let the reins go.”

As a consequence, there are three principles for family-run companies to bear in mind: first, dissipate power among senior figures; second, avoid having the same person as CEO and Chair; and, keep emotion out and run the business as exactly that – a business, not a family endeavour.

 

 

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