Saturday, June 4, 2011

Why Companies Are So Bad At CEO Succession Planning

What do Apple, the Indiana University men's basketball program, and the CBS Evening News have in common?

For starters, each is associated with iconic leaders.

At IU, Bobby Knight led his teams to three national championships in the 1970s and 80s, and no Division I basketball coach has more career wins. The CBS Evening News has a proud tradition of high-profile anchors, including Walter Cronkite, Dan Rather, and, most recently, Katie Couric, who is the first female solo anchor of an evening news program among the traditional big three networks.

And in the case of Apple, well, anyone who has been paying attention to recent consumer trends or stock market prices is aware of why Steve Jobs has such a sterling reputation.

But these organizations share something else. Each also has been criticized for a lack of effective succession planning.

After Knight's ouster in 2000, the program seemed dazed and confused. Since then, IU has had three different coaches, none of whom has come close to reaching the team's former glory.

When Katie Couric announced in April 2011 that she would leave CBS Evening News, many observers thought that she was pushed out due to poor ratings. But even more wondered who CBS might hire as a suitable replacement.

Recent rumors have also swirled about Steve Jobs' health, and who will take over when he leaves Apple for good. News about a potential successor has not been forthcoming, despite a rash of constant nagging by large, powerful institutional investors. As we are left in the dark to consider the company's plans, only time will tell whether the company can prosper in the post-Jobs era.

Three world-class organizations, three examples of poor succession planning. And these organizations are not alone. Indeed, most companies still struggle with succession planning, despite the high priority boards claim to have for it.

Why? What's going on here? What accounts for this poor record?

It's not due to a lack of resources or effort. Today's companies spend an enormous amount of time, money and effort on leadership selection and development decisions.

They also recognize how just how important it is to get it right. When Jack Griffin was ousted earlier this year after only five months as CEO of Time Inc.'s magazine division, the incident was a huge set-back and embarrassment.

The truth is, succession concerns are at the top of every board's to-do list. According to the world-class executive search firm Spencer Stuart, boards ranked succession planning as their number one priority, right alongside setting a vision and strategy for the company.

Nor can bad luck or surprise be blamed for coming up short in this area. Everyone knows that the CEO (and other key leaders) can be here today and gone tomorrow, whether by choice, injury, scandal or lackluster performance.

Instead, most companies do a poor job at succession planning because they don't know how to develop a process that includes accurate leadership assessment. In our book, "Why Are We Bad at Picking Good Leaders?" we explain how the best companies get it right, and what those that don't should be doing to get better.

The following is a check-list for first-rate succession planning in any organization:

1. Set the right tone at the top.

We recently interviewed a newly appointed CEO who surprised us when he confided, "Before I started the job, when I began sketching out my first 100-day plan, I made sure to include a clear focus on succession planning. Some people thought I was nuts. I hadn't even arrived and I was thinking about a successor. But the board loved it. I explained to them that I wanted to show the entire company that we take leadership development seriously."

While this example might seem extreme, it's not. It's good business.

When the board and CEO embrace succession planning, he or she sets the tone at the top, and this attitude is contagious. Everyone starts to think of leadership development, and getting the right leader in the right job, as a critical, ongoing process.

As a result, when key positions open in the future, the company is more likely to be prepared. Companies that emphasize succession planning from the top down end up having a steady pipeline of talent that is ready to step into key leadership positions whenever and wherever the need arises.

2. Focus on the attributes that matter for leadership success.

The first step in succession planning is to get an accurate assessment of leadership potential.

Unfortunately, this is harder than most people think. As a society, we rely on some rather misguided ideas about what is important for leadership success. When it comes to evaluating talent, for example, most people get seduced by a charismatic personality, Ivy-league credentials or even past experience. These factors sound important, but at best they only tell half the story.

In our book, we describe the seven essential leadership attributes that organizations should be seeking in their leaders: integrity, empathy, emotional intelligence, vision, judgment, courage and passion. When even one of these is missing, a leader will eventually fail. Thus, it is imperative that organizations understand what their rising stars need to work on before moving ahead.

Note that without this baseline knowledge, it is impossible to effectively match a leader's strengths with the requirements of a given position. A leader who needs to improve her empathic skills and social savvy, for example, might be given a role that requires her to mediate severe conflict and to interact with constituents all possessing different agendas and motivations.

Or someone who lacks sufficient courage and vision might be asked to grow and operate a new business unit from scratch, under extreme pressure and with almost no direction.

Is it any wonder that so many companies end up reaching outside the organization for the elusive "white knight" to come in and save the day when internal talent doesn't seem ready?

3. Don't let assessment reports sit on a shelf and collect dust.

Most companies spend a lot of money on executive training to ensure that they are grooming future stars, but they do it in the wrong way.

Without an accurate assessment of their high potentials' strengths and developmental needs, they aren't giving leaders the kind of training, opportunity and attention that these people deserve. Instead, companies send leaders off to expensive, off-the-shelf executive education programs, or assign them to mentors who do not provide a complementary match.

The best organizations insist that leadership development and leadership assessment be tightly linked. They don't leave the assessments on a book-shelf to collect dust -- they use them!

One company that understands this better than most is Siemens. When CEO Peter Loescher joined the company in 2007 in the wake of a massive bribery scandal, he ordered an assessment of the top 400 people in the company. Loescher knew that, in order to move ahead, Siemens needed to have an accurate reading of its people. Only then could the company develop them in a way that matched its strategic needs.

"We use a consistent assessment approach across the organization," Loescher told us.

As of December 2010, over 3,000 employees were benchmarked in this way. The results are then used to build robust, customized leadership development plans.

"We can do succession planning for each important position, and move people around to meet unexpected needs. We also know the exact skills that people need to work on to reach their potential."

Companies like Siemens do well at succession planning because they view it as an extension of ongoing development backed by accurate assessment.

Thanks to Jay Moran and Jeffrey Cohn, Leadership & Innovation Advisory Group / Business Insider
http://www.businessinsider.com/why-companies-are-so-bad-at-ceo-succession-planning-and-how-to-do-it-right-2011-5

 

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