Executive succession planning: Do you know who’s next in line to lead the company?

As talented as your C-suite team is, that lineup won’t stay intact forever. If your organization hasn’t addressed its future with an executive succession plan, or an update of the existing plan, now’s the time.

It’s inevitable – there will be management team departures due to retirement, promotion or something else. PwC’s 2018 Strategy & CEO Success study found that turnover among just CEOs at the world’s largest 2,500 companies reached nearly 18% – that was before COVID.

Having an extended vacancy in any executive role can become a major risk, especially if a crisis suddenly strikes your business.

Not properly planning for executive succession can lead to turnover, disrupted business partnerships, halted initiatives, a decline in financial performance and loss of revenue.

Despite the cautionary tales of what happened at Microsoft in 2013 and at Disney in 2016, many companies still aren’t dedicating enough time, energy and resources to leadership development and executive succession mapping. In fact, Harvard Business Review proclaimed that “the amount of market value wiped out by badly-managed CEO and C-suite transitions in the S&P 1500 is close to $1 trillion a year.”

On the other hand, getting executive succession right:

• boosts investor confidence
• promotes strategic corporate vision
• provides depth and continuity at the top
• solidifies employee confidence, bolstering morale and encouraging advancement, and
• builds the reputation of a leadership brand in your market that attracts and retains top talent.

Bringing executive succession into focus

One way to get started on executive succession planning is creating a “nine box” matrix – a 3×3 grid, with gradient qualities listed in each of the nine sections.

The leadership team or board of directors uses it to plot possible successors for a departing executive. Those who make it to the top right of the matrix are the top candidates for the position.

Another approach is having all executive team members make a “short list” for HR of the people they’d trust to be their successors, either from within the company or from other organizations. The list is consulted when the exec is about to depart.

To eliminate human bias, which can cause promising candidates for executive succession to get overlooked, it’s worth researching the AI-enabled job intelligence software solutions on the market that use algorithms to objectively evaluate relevant skills, experience and attributes among the people within your organization.

Plan of action

Strategic moves to make from there include:

1. Encouraging your board of directors to take ownership of executive succession by forming a search and selection committee. The committee should have defined roles and responsibilities for everyone, and must collaborate with your CEO and CHRO to design and implement an executive succession plan.
2. Naming a chairperson for the committee who’s disciplined, objective and a discussion facilitator. If interpersonal dynamics get tense, and emotions threaten to bubble to the surface, the chairperson’s the point person who will commission final independent candidate assessments, possibly meet one-on-one with each committee member and your CEO to get a better sense of their views, and develop succession scenario analyses for each candidate – addressing the perspectives of key stakeholders, benefits and risks, what the executive lineup will be, their roles and how well these people will mesh.
3. Setting a meeting schedule for the committee – twice a year, for example – so executive development review is a natural part of your management practices.
4. Defining your executive search process. What’s the profile of the person your organization needs in a CEO, CHRO, COO, CMO, CIO, etc.? Who are candidates for leadership development? What interview questions will you ask to determine if candidates are ready to meet your company’s future challenges? What will your reference check procedures be? How will the final decision be reached? What’s supposed to happen during the transition period? Clearly outline best-fit practices, ongoing assessment criteria, and HR-integrated talent development methods and resources.
5. Taking a fresh skills inventory of your existing talent. Get to know your in-house high-potential prospects and advise the committee of who they are. Because they might not be the “no-brainer” choices from the short lists, consideration needs to be given across the organization. Comb through performance reviews and self-assessments, conduct interviews and group evaluations and consider a possible stress test like making a presentation at a board meeting.

What about the office of the CFO?

Thinking about your own successor may be the hardest part of this process. But this question must have an answer: Who takes over if you suddenly had to take a temporary or permanent leave of absence?

Because CFOs hold a critical office across the enterprise, there’s a duty of care to identify, recruit, coach and mentor possible successors within the organization – even if there’s a tendency to hire external candidates for executive roles. Who’s on the payroll that’s already equipped with the essential technical, leadership and strategic skills? Who could do a good job if they just had a little training? And are these people interested in being groomed for the role?

Your search and selection committee will need the names of those viable internal candidates. That’s the time to ask for their views specific to CFO succession.

When you’re comfortable with doing so, start sharing your institutional knowledge with your possible successors and delegate more responsibilities to these high performers. Don’t think of it as easing yourself out of the job; think of it as ensuring that the business stays sustainable.