CAG Solutions » Executive Succession

Succession Isn’t:Why Succession Plans Fail

Lucinda Doran — Wed, 04 Nov 2009 14:09:49 +0000

     In my opinion, many succession planning efforts in organizations do not work because they fail to take into account the fact that jobs at the top are simply different from other jobs. For one thing, as jobs near the top they become increasingly ambiguous. It is difficult to describe them in any way that truly captures the complexity, variability and context sensitivity of the roles. No two CEOs, CFOs, HR Heads, CIOs, CMOs or COOs necessarily operate similarly across organizations even when their content knowledge is comparable. Second, no matter how “strategic” lower level roles may be described, they are more internally focused, functionally narrow, and tactical than higher level roles. It is only at the top or next to the top level of the organization that peers are, defacto, across rather than within a function and that strategic considerations within and across expertise begin to take shape. The top level is the only place where both the external and internal factors salient to the business meet.
     A.G. Lafley, Chairman and CEO of Procter & Gamble, adroitly points out in his article published in Harvard Business Review how the top job is different from any other job in the organization (What Only the CEO Can Do, May 2009). While it is generally conceded that the best successors come from inside an organization unless there is a burning platform, it is rare that their training and development actually gives them the opportunity to practice “in vivo” for the responsibilities of higher level positions articulated by Lafley.
     Too often, executives rise within a function without the benefit of broadening their capabilities and perspectives. Very often, executives obtain titles that gain them entrée into the higher order by jumping to other companies. Both efforts can lead to mediocrity. The time is rarely taken to assess and select for the attributes and armed with the arsenal of skills and knowledge that will make them outstanding in their roles, particularly in turbulent times. How often have I seen the “Peter Principle” at work where truly outstanding professionals at one level rise to “their highest level of incompetence.” The justifications typically look like; (a) to fill a vacant space because it seemed the natural choice even where there are questions about the candidate’s potential success, (b) because the candidate is politically astute and knows how to “fit in,” even if that means lacking the ability to think independently, or (c) a candidate’s past results in a vastly different context have been taken as a sign of his or her ability to perform in the current one without further examination. The push for early and rapid decisions lay at the hands of board members, chief executives, and internal and external search functions, often with the notion that if the candidate doesn’t perform he or she can be traded out. It is no wonder that, by any standard, we see an increase in the turnover of CEOs and executives over the last 10 years. If they survive, it often is a trial by fire….necessarily risky for them, their companies and their shareholders.
     There is more written on executive and leadership selection and development than almost any other topic on organizations and we talk as if we are preparing middle or senior managers for top roles in our efforts. Better we are honest with ourselves and others and call it “Replacement Planning” rather than Succession Planning. I concur with Bower & Neilson (Directorship, April/May 2009) that, to truly be succession planning, companies need to take risks, identify those with the breadth of understanding and personal and managerial characteristics and potential required for higher level roles and intentionally and thoughtfully invest in the experiences and tutelage that will prepare them.

Family Businesses are Different

Lucinda Doran — Thu, 28 May 2009 13:35:27 +0000

Family-owned businesses are simply different from other businesses. Up to 90% of a family’s net worth can be tied up there. Family businesses also have two primary and often conflicting priorities – (a) the growth and survival of the business and family assets and (b) the maintenance and survival of family relationships. These conflicts often exacerbate when the economy is tough. This is because it is natural for people to become more conservative and other factors, such as individual short term and generational interests or individual responses to stress, become more salient. Thus, family businesses require even more effective management of both the business (the “head”) and the emotional (the “heart”) issues during such times.
It is typical and understandable for any investor, families included, to focus more on short term financials than on long term opportunities or preferences during tough times. However, absence of full consideration of the “heart” issues tied to a sale or liquidation event almost always involves an emotional loss of some sort and can disrupt family ties, even when there is a true “burning platform” (imminent failure of the entity, death of a significant owner, etc). In my opinion, it is more than likely the full problem is broader than the financial situation. Here are a few guidelines to help you get to the best solution for your investment.

1. Consider where your business is in its life cycle and whether family member/owners have the resources (talent, motivation, financial) and are prepared to go to the next step.

All businesses go through predictable life stages from birth (startup) to maturity to revival or decline. Each stage places different demands on leadership, systems, structure, etc., which family owners must agree to manage and invest in for the business to survive and grow. At each inflection point, the organization becomes inherently less familial as size increases.

For example, leader vision, creativity and drive are core to the start up stage. As growth occurs, leader ability to provide clear direction and control, to begin development of strong internal systems and to delegate responsibilities are musts . These require quite different leader attributes and, if they are not held in the family, others must be brought in and given authority and support to lead. When this occurs, family owners must be prepared to let go of personal control.

2. Consider where your family is in its generational ownership life cycle and how open/ready it is for change

While continuity of family ownership into future generations can be key to building significant family wealth, family businesses that go beyond the second or third generation are rare. This is because the dynamics among owners become exponentially more complex with the number of owners and the talent, motivation and commitment to the business and stakeholders may simply no longer exist in the same way.

The ability to gain and act on consensus about what to do next is a big “if” especially when economic times are tough and there are no clear answers to the problem. What people say they want and what they’re actually ready for are two very different states of being. For each individual, there is an inherent push against change if his/her perceived risk from change is greater than the dissatisfaction that is experienced from the current situation. As generations are added and the numbers of owners get larger, factions often appear or those that existed become more extreme and entrenched. And, as one perspective becomes more in or out of favor, the entire system shifts to maintain balance among relationships. How these shifts are handled can determine whether and how effectively the family business can be managed.

3. Understand what you want to accomplish and why

Each individual is likely to want to accomplish something beyond the financials through its ownership in the business. Common needs include a strong identity with the founder or the industry to influence inside the family to community influence to securing assets for children to ensuring a certain current lifestyle to being afraid of what might not be there if it ended to simple (or not so simple) sibling rivalry.

There may be some wrong choices in determining actions to take in family businesses to meet these multiple needs but there is rarely one right choice. As in life, it is usually about tradeoffs rather than absolutes. Understanding what family members want to do with their assets, whether or not some want to maintain a role in ownership or management, speed of transition and a host of other factors along with forces for or against tradeoffs are critical for a positive outcome.

4. Identify and honor the multiple “hats” and perspectives of owners

Each family member or investor plays multiple roles – those of owner, father, daughter, cousin, brother, manager, aunt, grandparent, neighbor, local citizen, etc. The lens through which each person filters information has much to do with his or her perspective at the time. Acknowledge your own hat and consider what you would be thinking or saying if you were wearing another hat.

5. Trust the process

Finally, take the necessary time to make the right choice for the family. While it is true that inaction is the same as action, it is not unusual for decisions, which might occur in a few months in another type of company, to take many months or years in a family business.

Seek outside assistance. It is common for family businesses to try to “do it on their own.” Yet, just as you wouldn’t try selling your business without the guidance of an investment banker, attorneys and accountants, other professionals can help you get to common ground. A well balanced board or advisory board containing some non family members who have expertise in important areas to provide feedback or working with a trained and objective facilitator who has expertise in organization and interpersonal dynamics and systems before committing to drastic moves can help you through the rough patches.

Making the Most of a Short Courtship: Reducing the Risk in Executive Succession

Lucinda Doran — Thu, 28 May 2009 13:33:39 +0000

In many ways, executive succession is like a brokered courtship and marriage, especially when external candidates are involved. Both parties usually present their best selves, position for best advantage and look for confirming evidence of their initial positive impressions. Unlike many courtships, however, executive selection rarely includes the time or process necessary to reality test the relationship before the marriage is consummated.
Mistakes are expensive. CEO turnover has risen over the past 10 years (Directorship, April/May 2009) as has that of senior management. The typical cost of failed hires or promotions is easily upwards of $500,000 in the first year, not including recruiting or organizational costs such as lowered productivity or morale. In response to escalating costs and the need to reduce decision risk, many organizations are looking to increase the accuracy of their predictions, particularly when there is a short time frame for a hiring or promotion decision.
Assess the Context and the Individual and Optimize the Match
Executives typically are hired or promoted because of their strengths to meet specific goals, strategies or competencies. Once decisions to move a candidate to the next step are made, decision makers can find it difficult to evaluate the potential negative “ramifications” (or flip side) of these strengths. Because, in my opinion, one rarely needs to manage a new executive’s strengths, a key element in making the best decision is to discern whether or not the flip side of the candidate presents is significant enough to put the potential hire at risk.
There are several steps that can help you improve the probability of successful executive succession:
1. Assess the context: Executive succession is a strategic process and, as such, scenario planning should be used to determine the best candidate. Decision makers need to think through and elaborate the multiple dimensions, possibilities and desired criteria that will be used to match these against a candidate’s history, skills, potential and attributes. At the CEO level, this includes external constraints and board dynamics. There is ample evidence to suggest that a significant mismatch on any major dimension, including current or desired corporate culture, can either limit or derail a potential high performer.
2. Assess the final candidate(s). For most candidates who achieve this level of accomplishment, it is rarely an issue of whether or not they can “do” the job. It is more about their abilities to do the job in a particular time and culture and with a particular set of challenges and opportunities ahead of them. Ultimately, the process is about making choices and understanding the tradeoffs of any particular decision path. A well designed executive selection process that includes an in depth objective assessment by a professionally trained selection psychologist can reliably and validly do this for you and formulate appropriate steps that will help ensure a candidate’s successful performance.
3. Optimize (vs Maximize) the match. Although rare, there are cases where too strong of a fit between a candidate and a role can limit the potential of both the individual and the organization to make changes. This is a greater risk with internal candidates. On the other hand, lack of fit also can undermine individual and corporate performance. One often sees this in external candidates brought in to reinvent the organization when it has no “burning platform” or neither the organization nor board is strongly committed to a change direction. The best choice often is by matching the candidate with probable environmental change demands.
4. Ask for and Take advantage of frank discussions with service providers. It is usually a frank conversation that will be most helpful in making an effective decision. During these conversations, the assets and potential liabilities of each candidate can be compared, hypothetical scenarios played out, additional questions asked about the importance of specific criteria and, should the finalist(s) not be appropriate, can guide continued search efforts.
Even when engaging fully in these steps, risks can be managed further by taking the candidate who ultimately is hired through an early onboarding process to jumpstart his/her performance, clarifying short, medium and first year expectations and holding the new executive fully accountable for aspects of the business that are under his or her control. In my experience, even taking a small effort in onboarding by providing candidate feedback and clarifying expectations between the hiring manager or Board Chair and the newly hired executive can elucidate how to avoid pitfalls early in the relationship.

This blog is an update from an article written by the author that appeared in the Boston Business Journal (July 31, 1998).