“Succession” is the name of an Emmy Award-winning TV show about a fictional family, and as the saying goes, art imitates real life. A brief synopsis of the show states, “Although he has no plans to step aside as the head of Waystar Royco, the international media conglomerate controlled by his family, aging patriarch Logan Roy is contemplating what the future holds. Despite a best-laid succession plan, tempers flare over Logan’s intentions.”
Planning is critical in succession strategy, but it’s neither foolproof nor a guarantee that a transfer of power will go smoothly. Succession planning is a process that ensures your next generation of leaders are capable and the transition of power is seamless. It’s a journey that both family-owned and privately-owned companies must take. Succession planning can be emotional, even dramatic, as companies struggle to chart the best course for a successful future. Retirement, change of ownership, and company culture are all contributing and complicating factors, and every executive search is different based on the culture of the organization and the core competencies within the current team.
Succession planning requires a good deal of emotional intelligence and foresight on the part of the current leadership. Both of these requirements are difficult for companies at present time amid the COVID-19 pandemic. While the unemployment rate fell to 7.9% in the U.S. at the time of this writing, job growth has slowed. Companies continue to see declining revenues, and it’s hard to judge what the economy will look like in two months, let alone a year or more from now.
From what we’ve observed, a majority of companies seem to be suffering from “paralysis by analysis” and have stalled the succession plans they were considering pre-COVID. Still, there are those companies that responded to the pandemic as a call-to-action to future-proof their businesses. Despite their concerns about an unpredictable economy and operating environment, executives can and should take steps to move forward. Now is the time to create or revisit a succession planning strategy, regardless of whether your current executive is 45 or 65.
Generally speaking, many organizations are unprepared for sudden departures, which can throw a company into chaos. Beyond the internal disruption, it can send a negative message externally to key stakeholders. A company can mitigate this fallout if they have the right succession plan and honorable people carry out its execution.
In-N-Out Burger is an example of a company that has remained successful in spite of several tragic losses and sudden transitions. Harry Snyder founded the famed restaurant chain in 1948 but died of lung cancer in 1976. His youngest son, Rich, took over the business but died suddenly in a plane crash in 1993. Rich had no children, and his older brother, Guy, who struggled with substance abuse, took control of the company, eventually passing away from a drug overdose in 1999. To maintain the family’s control, Harry’s wife and family matriarch Esther Snyder took over the company at age 79 while recovering from a broken hip. She led the company until her death in 2006. By that time, her only grandchild, Lynsi Snyder-Ellingson, became the sole heir of In-N-Out. She was elevated to president in 2010 and carries on her family’s legacy and the company’s founding mantra, “Quality, Cleanliness, and Service.” This familial approach to succession has only succeeded with a tremendous amount of resilience and grit. Proactive planning negates the need for unplanned, sometimes emotional, transitions.
While no two succession plans are exactly the same, there is a basic framework that applies. It starts with communication and transparency. There was no ambiguity in the future of In-N-Out in the sense that the company would remain a family-owned, private company that doesn’t franchise. The executives who helped guide the transition of power during crises made sure it stayed that way, and eventually cleared the path for the founder’s granddaughter. Lynsi Snyder-Ellingson continues to exhibit excellent leadership. As of 2018, she had a 99% approval rating on Glassdoor.com and was ranked No. 4 on Glassdoor’s list of top bosses at large companies, ahead of three major tech CEOs.
Here are 2 key lessons about transparency and good communication in succession planning, from our experiences working with major companies:
1. Identify Key Decision Makers Early
Who are the decision-makers responsible for identifying and hiring/promoting a new executive? These leaders will be accountable for making decisions about internal vs. external candidates and how they’re evaluated. It’s important that these key decision-makers come to a consensus on the framework of the succession plan prior to engaging with a search firm. It will help to eliminate some of the surprises that can occur during the search and will allow an organization to move quickly when the right candidate comes into view.
The key decision-makers will ultimately be responsible for assessing a candidate’s performance and potential, measuring their key activities and results, and determining how those factors tie into executive compensation. They should not gamble on past performance as a predictor of future success in a new role and instead use a variety of effective ways to assess potential with relevant, consistent criteria.
Collectively, key decision-makers must make sure succession planning aligns with business strategy. They should also be able to clearly articulate the case for taking the time for succession planning now vs. dealing with the consequences of postponing it. They should be able to manage the irrational, political, and emotional dynamics of succession. Just ask anyone who’s ever been in the thick of a succession planning program, or talk to any CEO that’s faced with the prospect of “letting go.” It’s not for the faint of heart, and clear-headedness comes with experience and emotional intelligence.
2. Be Open with Employees so You Can Identify Top Talent
Your next resilient leader may already be within the ranks of your company. For instance, GM CEO Mary Barra started on the assembly line, while Wal-Mart CEO Doug McMillon loaded trucks as a teenager at a local distribution center. In terms of “entry-level executives”, IBM cleared a pathway for Senior Vice President Virginia Rometty to become the company’s first female CEO in 2012.
Coca-Cola took a similar approach in 2016. Notice the choice words of Muhtar Kent, former Coca-Cola CEO as he named his successor, James Quincey in 2016: “One of our Board’s key priorities is developing the next generation of leaders and James is a perfect example of our talent pipeline in action. Having worked closely with James during the past 10 years of his 20-year career with our company, I know that his vast industry knowledge, expertise with our brands, values, and system, coupled with an acute understanding of evolving consumer tastes, make him the ideal candidate to effectively lead our company and bottling system.”
Each of the aforementioned companies took a “pipeline” approach to development, with the identification and development of talent at all levels of the organization. Talent development has to become part of the corporate culture, and companies should make a serious commitment to their program through time and resources. An example of a good structure/format is regular talent reviews. The Board can review talent with the CEO, the CEO reviews talent with the executive team, each executive team member reviews talent with their respective teams, and the process cascades down throughout the organization.
Takeaways
Remember that succession planning without investing in development is nothing but a useless exercise in futility. Unfortunately, companies sometimes underestimate the time and commitment it takes to develop and administer retention programs. Most organizations today are running lean, and that means most employees’ time is spent on day-to-day tactical issues vs. strategy. This puts retention programs in the category of “nice to have” vs. “must-have,” which is a missed opportunity.
We already know that companies that have successful employee retention/talent development programs have happier employees and reduce the time and expense of replacing key executives. Just consider that the average cost of losing an employee is 33% of their annual salary, according to one study. Not losing sight of this “big picture” can be extremely valuable for companies in the long run.
Also, keep in mind that the best companies spend more time developing candidates than they do creating lists, and succession planning is not a super-secret process conducted in a smoke-filled room. It’s a process that should be transparent and integrated with performance management, recruitment, selection, development, and rewards. Support from the top is required for these programs to be successful. Leaders need to know that time spent mentoring, setting performance goals, and giving employees cross-functional opportunities are valued.
When it comes to succession planning, hiring a trusted third-party advisor is a smart move that can help you objectively identify your team’s strengths and weaknesses. It can also help inform your internal pipeline for candidate development.
Don’t wait for the next global crisis to get started. Executives Unlimited is committed to helping our clients develop their strategic executive workforce planning. For information about our services, please call us at (866) 957-4466 or contact us online today.