Every organization can expect to deal with leadership changes, especially given that we’re seeing a record number of CEO turnovers this year.
But, without the right approach in place, leadership transitions can put companies in a vulnerable position – from stock prices taking roller-coaster rides to employees feeling anxious about the ongoing changes.
That’s why it’s critical to have a thoughtful succession plan in place.
In this post, we’ll provide best practices to keep in mind for succession planning and share examples of successful leadership transitions.
3 best practices for developing a succession plan
A seamless leadership transition doesn’t happen overnight. That’s why a key part of succession planning is being able to think ahead at least three to five years. Here are four best practices to help you stay ahead of the curve.
1. Cultivate a pipeline of talent
Building a high-quality talent pipeline is a challenging and time-consuming process. In fact, 74% of public and 52% of private companies reported that maintaining a robust talent pipeline is the most difficult aspect of CEO succession planning.
Unfortunately, the pipeline is something that many HR teams tend to neglect. 40% of companies report not having a single internal candidate to replace the CEO should he or she exit the position. This puts the company in a vulnerable position and will ultimately cost the company in several ways, from paying for executive search costs to seeing turnover amongst high-potential employees (HiPos) who feel overlooked when they’re not considered for leadership positions.
That’s why, even though you might not have any open positions now, it’s important to start cultivating that pipeline today. This means accurately identifying who your HiPos are and making sure you’re constantly adding new candidates into the mix.
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2. Invest in the ongoing development of leaders
Simply having a pipeline isn’t enough for succession planning. Companies also need to invest in the leaders they’ve identified and make sure they’re prepared for executive roles when they become available. In practice, this means helping HiPos develop relevant leadership skills, align with the company culture, and have opportunities to be exposed to various roles and responsibilities.
On the surface, companies invest a lot of resources in training their leaders. A Training Industry study found that organizations around the world spend $370 billion per year on leadership development. Yet 74% of executives were not prepared for the challenges they faced in senior leadership roles. This indicates a gap between the type of training that’s being provided and the intended effectiveness.
We’ve found that one of the best ways to invest in the growth and development of these leaders is to offer mentoring and leadership coaching programs. Not only are mentoring and coaching the two most unmet needs of HiPos, but we’ve also found within our own dataset that 92% of mentees report improved confidence in handling challenges and increased skills for the job. Similarly, the International Coach Federation also reports that 86% of companies report that they recouped their investment in coaching and more.
3. Regularly monitor and assess your leadership bench
Organizations and people are constantly evolving. That’s why it’s necessary to regularly monitor and assess your leaders. This process ensures the HiPos leaders in your pipeline are still aligned with the needs of your company. It can also help you identify any new or rising HiPo leaders you may have missed in your initial assessment.
For example, you may have identified a promising HiPo leader in your talent pipeline. But, after a few years at your organization, it’s evident that they’re not growing in the direction that you anticipated. Without regularly assessing this individual’s performance, you wouldn’t be able to identify that they’re no longer a good fit for the executive position they were originally being considered for. And you may be passing up a better fit for the role in the process.
3 succession planning examples
Given the public nature of leadership transitions, we’ve seen many succession plans in action. While not all of them go as smoothly as anticipated, some companies do an excellent job of putting the best practices we outlined above into practice.
McCormick & Co.
In 2008, spice and flavorings giant McCormick & Co. transitioned its CEO position from Robert Lawless to his successor Alan Wilson using a succession model that was praised for being thoughtful, comprehensive, and well-executed. Lawless made a point of establishing a transparent timeline of five years, planning his transition to a non-executive chairman of the board role. He also tied part of his discretionary compensation to succession planning, proving his investment in finding and preparing the right person.
What McCormick & Co. did right:
- Developed its own robust succession planning over the course of many years, taking its time to intentionally identify and create thorough development strategies for all senior executives
- Monitored the progress of its potential candidates over several years before settling on Wilson, who demonstrated a strong fit with the company culture and a deep understanding of front-line issues
Virginia Rometty’s succession as CEO of IBM in 2012 is also a case of internal succession planning done well. Rometty’s advancement worked well because of her cultural fit, and because of the professional development systems that allowed her to succeed based on merit and become IBM’s first female CEO. HR analyst Josh Bersin said of Rometty’s appointment: “IBM’s talent management process is very mature, integrated, and global. At the executive level, the company takes development planning and succession very seriously.”
What IBM did right:
- Rometty started at IBM as a systems engineer, eventually climbing the ranks upward to SVP and Group Executive for Sales, Marketing, and Strategy before being offered the CEO role
- She’s a prime example of an incoming CEO who was well-entrenched in the company culture, known to the board, and had a sterling track record
Barneys New York
Luxury retailer Barneys New York went through a long-planned change as Daniella Vitale stepped into the CEO role in 2017, replacing her predecessor and mentor Mark Lee. With her long tenure in the high-end fashion retail industry, Vitale was considered “uniquely qualified” to run Barneys. She worked as an assistant buyer while still in school at LIM College and moved her way up through lateral moves between major brands, including Ferragamo, Armani, and Gucci, before joining Barneys in 2010 as a Chief Merchant.
What Barneys New York did right:
- Vitale was given substantial leadership opportunities and had experience running nearly every facet of the organization by the time she was offered the CEO position
- Lee spent a long time investing in Vitale’s success, and he was instrumental in putting together a formal five-year succession plan specifically for her
Succession planning is a long and laborious process. But done right – by cultivating a high-quality talent pipeline, developing your HiPo leaders, and regularly assessing fit – it can make an otherwise stressful transition much smoother. Want to learn more about how to identify and develop the HiPos in your organization? Download our ebook here.