Sadly, in late May we learned of the sudden death of Ed Gilligan, President of American Express. Gilligan spent his entire business career at American Express and was considered the likely successor to CEO, Ken Chenault.
Also in May, David Goldberg, CEO of SurveyMonkey and husband of Facebook COO Sheryl Sandberg died very unexpectedly when he fell while exercising on a treadmill in Mexico.
These tragedies are unquestionably and thankfully infrequent. Nevertheless they are a reality and remind us that planning for casualty is a necessity both for families as well as the businesses and organizations we all inhabit.
Planning can take many forms but within the context of businesses, it is succession planning that should take center stage. Who is next in line for a role? Jack Welch, the former Chairman and CEO of General Electric (GE) was a huge proponent of succession planning and GE is often looked upon as the standard by which succession planning should be practiced. In 1991 Welch famously stated: “From now on, choosing my successor is the most important decision I’ll make.” This was a full nine years before his anticipated retirement.
We are all not GE and perhaps do not have the luxury of succession planning over a period of so many years, but nevertheless some forethought is necessary and indeed prudent. Strategy& (formerly Booz & Company) studied 4,498 succession events. They found top-performing companies, as measured by total return to shareholders, had planned successions 79 percent of the time, and, coincidentally, hired 79 percent of their CEOs from inside.
Succession planning is actually part of sound strategic planning and risk management. Strategic planning defines the direction of the organization and risk management identifies and attempts to mitigate risk. Human capital, both current and future is an indispensable aspect of any such analysis and discussion.
In spite of its importance, succession planning is still not standard operating procedure as we see evidenced time and again when companies are caught scrambling when a position opens up suddenly. According to a survey done last year by the National Association of Corporate Directors (NACD) two-thirds (yes, 2 out of 3) US public and private companies admit that they have no formal CEO succession plan in place. This is the case despite the fact that CEO succession planning is universally considered a critical business continuity issue.
Another concern with succession planning is that it must go beyond the CEO. That is, to fully mitigate risk, succession should be looked at and planned for all of the key leadership positions. In fact I would venture to say that the further down the organization the planning goes the better. This, of course, must always be weighed against the cost to the organization of undertaking such activities.
Succession planning is a key responsibility of the board of directors as it pertains to the CEO. It is not an isolated activity but rather should be part of the culture and an ongoing point of reflection and discussion. For levels further down in the organization, preparing successors for various roles is part of leadership development and hence central to the responsibilities of management. It should also be mentioned that from the other side, the prospect of evolving and advancing within one’s organization is usually very motivating and can be a significant retention factor.
Unfortunately, the fate of our leaders is unpredictable. The dreadful passing of our leaders is also unpredictable. However some of the chaos that ensues can be managed by having a plan. Why wait, it is so worth it!