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Executive Summary........................................ 1
Review of Findings......................................... 3
Methodology...............................................12
Data Sources..............................................12
Executive Summary
A Steep Hill to Climb
The corporate leaders we interviewed all believe that succession Companies do not have an actionable process in place to
is vitally important today, just as it has been in the past, said select senior executives. Companies recognize the importance
Professor David Larcker of the Stanford Graduate School of of a thorough and rigorous succession process for both the
Business. Still, the majority do not think that their organizations CEO and senior executive positions; however, most fail to
are doing enough to prepare for eventual changes in leadership create one. The problem tends to be cultural: the majority of
at the CEO and C-suite levels, nor are they confident that they companies do not have honest and open discussions about
have the right practices in place to be sure of identifying the executive performance, nor do they allocate sufficient time to
best leaders for tomorrow. These findings are surprising, really, the process of identifying and grooming successors.
given the importance that strong leadership has on the long-term
Companies plan for succession to reduce risk rather than
performance of organizations. Research shows that companies
to find the best successors. Succession is fundamentally
with sound succession plans tend to do better.1
a preparation exercise for the future. However, respondents
Most company directors greatly underestimate the difficulty, time, are more likely to view this activity in terms of its potential to
and cost associated with CEO and C-suite succession planning, reduce future downside risk rather than producing shareholder
adds Scott Saslow, founder and CEO of The Institute of Executive value benefits from the identification of strong and appropriate
Development. They fail to recognize the need for a strategy for leadership. This is due in part to the scrutiny of regulators,
this critical business process, they havent had great exposure rating agencies, and other market participants that emphasize
to what other organizations are doing, and they havent thought the risk management and loss minimization aspectsrather
through what their own organization should be doing given than value creating elementsof succession.
its unique set of circumstances. This is more than lost upside
Roles are not defined and often they are not followed.
opportunity. It puts many organizations at risk of having unstable
Companies agree that succession planning involves the
executive leadership.
combined efforts of the board of directors, the senior
In the fall of 2013, The Institute of Executive Development and management team, and support staff such as the human
the Rock Center for Corporate Governance at Stanford University resources department. Most, however, do not structure an
conducted in-depth interviews with executives and directors at 20 evaluation process that formally assigns roles to each of these
companies regarding their succession and executive development groups and requires their participation. Furthermore, the key
practices. Key findings include: performance indicators of an executives performance often
do not measure his or her effectiveness in grooming and
Companies do not know who is next in line to fill senior
mentoring direct reports. There are few organizational metrics
executive positions. Organizations often do not make the
in place to determine how well the company is managing
connection between the skills and experiences required to run
succession overall.
the company, and the individual candidatesboth internal
and externalthat are best-suited to eventually assume senior Succession plans are not connected with coaching and
executive positions. When a list of possible successors is internal talent development programs. Succession planning
compiled, it is too often narrow in scope and therefore not and internal talent development are treated as distinct activities
relied on when a succession event actually occurs. rather than one continuous program to gradually develop
leadership skills in the organization. Because of this, the board
of directors does not have sufficient insight into the skills
and capabilities of the senior management team and is not
prepared to determine which executives are most qualified
1 See: Bruce K. Behn, David D. Dawley, Richard Riley, and Ya-wen Yang, Deaths to replace an outgoing CEO or C-suite member when a
of CEOs: Are Delays in Naming Successors and Insider/Outsider Succession succession event occurs.
Associated with Subsequent Firm Performance? Journal of Managerial Issues
(Spring 2006).
2014 Report on Senior Executive Succession Planning and Talent Development 2
To improve organizational succession and talent development 4. Assign ownership and roles. One of the biggest reasons that
programs, Mr. Saslow and Professor Larcker recommend the organizations fail at succession is that they do not assign
following: ownership and accountability to the process. An independent
chairman or experienced outside director should have
1. Map the future operating and leadership skills required of
primary responsibility. Other board members, the CEO, senior
each executive position and benchmark executives against
executives, and support staff should be assigned specific roles
these skills. Each position in the senior management team,
and held accountable for measurable results.
including the CEO, requires a set of skills and capabilities that
is related to its scope of responsibility and relationship to the 5. Connect CEO and senior executive succession plans with
organizational strategy. Executives should be evaluated not coaching and internal talent development. These programs
only in terms of their ability to achieve the requirements of are not isolated but instead strategically support one another.
their current role, but also in terms of their potential to assume The only way to have a robust and reliable succession plan
different or larger roles in the organization. When holes or is to map succession to the pipeline of internal executive
deficiencies are identified, plans should be put in place to talent, identify deficiencies in internal talent, and design and
rectify them, such as focused executive development activities implement development plans to overcome these.
or job rotation.
6. Assign coaches and mentors. Professional third-party coaches
2. Cast a wide net. Because an organization and its strategy are bring an outside perspective and degree of objectivity to the
constantly evolving, the skills needed to run the organization development process. They also allow for executives to grow
in the future might not be the same as they are presently. outside of the chain-of-command of the companys formal
Executive talent should be evaluated in terms of its ability to reporting structure. Similarly, board mentors can give senior
meet futurenot just past or currentneeds. To this end, the executives a new perspective on the organization while at
board and senior management should look broadly through the same time providing the board with greater insight into
the ranks of the organization to ensure they are fostering organizational performance.
a diverse set of talents and skills to take the organization
7. Get strategic assistance when necessary. The best
forward. Internal executives should be benchmarked against
organizations understand their relative strengths compared
the external market for talent.
to peers and seek to learn from the practices of others.
3. Be comprehensive and continuous. Succession is not Companies should survey the practices of other corporations
episodic. It should be treated as a continuous practice whereby and integrate the ones that are best suited to their current
management and the board prepare for transitions at any structure and situation. It is always a good idea to obtain
time and at multiple levels throughout the organization. This data on how your processes and executives compare to
includes not only the CEO position, but also his or her direct those at other firms. Each companys succession plan will
reports and other critical positions. Contingencies for these be customized to take into account its specific competitive
positions should be continuously maintained. Succession situation, depth of talent, and future strategy.
is more time-consuming, riskier, and more expensive when
carried out following a departure rather than in advance.
2014 Report on Senior Executive Succession Planning and Talent Development 3
Review of Findings
Leadership skills and expertise are not routinely mapped The CEO quit unexpectedly and we didnt have a
to executive positions, and current senior executives are successor lined up. Sometimes you have to promote
not benchmarked against a required list of skills. When an executive to CEO role earlier than you otherwise
benchmarking occurs, it tends to be on a one-off basis rather would. We always had discussions about who the
than comprehensively and continuously assessed for the entire stars were, how to develop talent, but we didnt have a
senior executive team. fixed succession plan that picked out a specific person.
Organizations cast a wide net to identify the best successor
You need to identify 125 people to get the top five, and
candidates. Respondents indicate reviewing several dozen
then plot their moves for years.
executives to find a handful of viable candidates.
Companies are reluctant to be transparent with internal Our company is small and we dont have layers of
executives about whether they are included on the list of extra talent. In a situation where the CEO gets hit by the
possible successors and about over investing in these proverbial bus, we may be in trouble.
executives, as this might lead to the premature departure of
capable executives who are not on these lists. We dont develop formal profiles. Each individual
decision is one-off.
Greater diversity is desired among senior executive teams but
achieving that diversity remains a challenge.
We dont have a formal skills or competency model for
Approximately 25 percent of organizations choose outside critical positions. We rely on recruiters for that.
CEOs rather than insiders. This trend is viewed by some
respondents as a failure to produce adequate successors One of the faults is that the same name pops up too
internally. often. If that person leaves, you have a serious gap.
Some boards believe it is simpler to choose an outsider
because the company can outsource the succession process Source: IED, Stanford University, 2014
to a recruiting firm who will source candidates, conduct
assessments, and facilitate a recommendation.
2014 Report on Senior Executive Succession Planning and Talent Development 4
Is your company grooming a specific executive to succeed the Key elements of a succession plan include:
current CEO? A shared vision of the future direction of the company
Percent
A skills and experience profile for the next CEO
54
Yes A skills and experience profile for critical senior executive
positions
46
No Identification of top internal talent and development of a
growth plan for each
Data Snapshot
In Their Words
Who on your board oversees the CEO succession planning
Most boards do not have an adequate process in place.
process?
When the company is not doing well is when you really
need the deep bench, but by that point it is too late to Percent
get it underway.
53
When people are looking at the effectiveness of Full Board
succession planning, they should ask: is it an annual
process or ongoing? What are the processes that 3
people use to keep things going? For example, have HR Succession Committee
meet every two weeks to talk about what VP positions
20
are open or projected to be open. Link strategy to Compensation Committee
talent. The operating calendar starts with developing a
business strategy, followed by a workforce planning or 20
organizational capability session, then talent reviews Nominating/Governance Committee
against that.
4
We have several hundred senior leaders. Each one Other
is put into quartiles, and the top 25 percent have
succession plans.
How often is the CEO succession plan reviewed?
We keep job descriptions updated for key positions
Percent
reporting to the CEO. This includes the latest strategic
plan, so our job descriptions are consistent with 55
current business direction. In committee meetings, Once per year
we review candidates for these positions, discuss
how they are progressing, learning, developing, etc. 26
When we cant find internal candidates, then we look More than once per year
externally. For some positions, we do a strategic hire.
We hire a person into a position that is open with the 4
Less than once per year
understanding that they will progress into a key role
down the road. 13
In event of retirement / emergency
Culture drives how successful succession is. Closed
cultures and cultures that are not feedback-based dont 1
have productive succession plans or discussions. Open Never
and transparent cultures are much more successful.
Ultimately, the CEO creates the culture and the boards
are guardians of that culture. When the board of directors discusses succession planning, how
much time (in hours) is typically allotted to succession planning?
Source: IED, Stanford University, 2014
Hours
1.14
Mean
1.00
Median
Sources: The Conference Board, IED, Stanford University, 2014; Heidrick &
Struggles, Stanford University, 2010
2014 Report on Senior Executive Succession Planning and Talent Development 6
The following content is used by one of the study participants to guide the succession planning process.
1. Strategic Planning Determine what capabilities, roles, and talent are needed to execute the business strategy today and in
the future
2. Talent Assessment Gauge the Executive teams bench strength Do we have who we need (now and in future) and if not,
how do we get there?
4. Performance Assessment Let people know they are valued contributors and provide them opportunities for development,
exposure to Executives, networking across Divisions, etc. (get them on the corporate radar screen.)
5. Development Create development plans for individuals (e.g., leadership workshops, classes, on-the-job learning,
assignments, special projects, 360s, external classes, etc.)
6. Retention and Engagement Rewards and recognition, work environment, opportunities for development, job autonomy
and scope of responsibilities, etc.
is the current structure Who are your key players? Succession plan, Who are our high potentials?
working? restructuring, eliminate job, Focus on women and
etc. minorities
The right direct reports? Too How are they doing? Who are internal What are their performance,
many? Too few? successors? capabilities, potential?
Any job that isnt but should What are their performance, Who are external What should we do to
be reporting to top Exec? career potential, & interests/ successors? develop them?
aspirations?
Any missing capabilities that Strengths, weaknesses, Are they ready to step up?
we need to recruite for? development needs? If not, what are we doing to
help develop them?
Critical jobs? What are we doing to help Retention risks (if no bigger
develop them? job open ups or passed
over)?
3. Companies plan for succession to reduce risk rather than 4. Roles are not defined and often they are not followed.
to find the best successors.
Companies with reliable succession plans involve members of
Most respondents state that they conduct succession planning the board, the senior management team, and representatives
for risk mitigation purposes. By and large, they do not conduct from key functional areas including human resources,
succession planning because they believe there is upside in manufacturing, marketing, and finance when appropriate.
terms of organizational performance.
The board of directors is often accountable for top-level
Respondents cite the importance of managing external succession planning and participates in talent discussions.
perceptions, maintaining continuity in the business, and Executives review their teams and participate in cross-
creating shareholder value. functional evaluations. The human resources function provides
tools and success profiles, facilitates talent reviews, and tracks
Companies are aware that succession planning is subject to
progression.
greater external scrutiny than it has been in the past. New
constituents cited include institutional investors, the financial While boards, executives, and human resources have distinct
press, the Securities and Exchange Commission (SEC), credit roles, their level of involvement varies across organizations.
rating agencies such as Standard and Poors and Moodys, and Many respondents claim that these three groups do not spend
proxy advisory firms such as Institutional Shareholder Services sufficient time meeting together. The frequency of meetings
and Glass Lewis. varies from quarterly, to annually, to never.
Organizations are concerned that the SEC reclassification of Companies that believe that succession planning is a
succession planning from a day-to-day management activity managerial responsibility tend to assign primary accountability
to a risk factor will translate into more disclosure, public to the CEO. Companies that believe it is a governance
scrutiny, and discussion. responsibility assign primary accountability to the board. In
some organizations, it is unclear whether the board of directors
or the CEO is primarily responsible.
In Their Words Some respondents believe it is not in the long-term interest of
the company to give the CEO responsibility for identifying and
If we dont get this right, it can have a significant developing his or her own successor.
impact on how we are perceived by Wall Street, by
The board of directors does not always play a central role in
investors, and by our own people.
succession. In some companies, directors review succession
plans but do not engage directly with specific candidates, or
Succession planning reduces the risk of planned and
participate in their development.
unplanned departures.
Human resources is the group most likely to be left out of the
We do succession planning for risk mitigation, to make discussion on succession. Boards and executive teams do
sure we have bench strength, and to develop future not always see a role for human resources and do not have
talent to take over the CEO role. confidence in their ability to identify or develop talent.
Our board is involved but only in an advisory capacity. At most companies, the board of directors does not directly
mentor or advise senior executives. However, among those
The board plays an arms-length, distant advisory role. that do, board mentoring is highly valued by the board for the
Their role is to review and approve the plan. 80 percent insights it provides into the organization and among senior
of the time, they approve the plan as is; 20 percent of executives who gain access to an experienced, respected
the time they request more data. advisor.
7
Yes
93
Data Snapshot No
Does your company have a formal talent development program How frequently do non-employee directors meet with senior
for senior executives below the CEO? executives below the CEO without the CEO present?
Percent Percent
60 28
Yes Quarterly
40 1
No Semi-annually
0
Annually
65
When circumstances warrant
6
Never
Respondents were asked to rate succession practices at their companies in the form of statements from the IED Index using a five point
Likert scale from 5 (strongly agree) to 1 (strongly disagree) scale.
To what extent do you agree with the following statements, regarding your company?
The CEO and executive team are actively involved in The board is actively involved in succession planning and talent
succession planning and talent reviews. reviews for key executive positions.
Percent Percent
27 31
Strongly agree Strongly agree
55 15
Agree Agree
9 54
Neither agree nor disagree Neither agree nor disagree
9 0
Disagree Disagree
0 0
Strongly disagree Strongly disagree
There are clearly defined competencies for key executive Our organization has a clear and compelling executive
positions. development strategy.
Percent Percent
23 20
Strongly agree Strongly agree
54 30
Agree Agree
23 40
Neither agree nor disagree Neither agree nor disagree
0 10
Disagree Disagree
0 0
Strongly disagree Strongly disagree
2014 Report on Senior Executive Succession Planning and Talent Development 11
The board believes there is an effective succession plan There is an adequate pool of ready successor candidates for
in place. key C-suite positions.
Percent Percent
8 17
Strongly agree Strongly agree
42 8
Agree Agree
25 42
Neither agree nor disagree Neither agree nor disagree
8 33
Disagree Disagree
8 0
Strongly disagree Strongly disagree
There is a formal process for developing successor candidates There is an adequate pool of ready successor candidates for
for key executive positions. the CEO position.
Percent Percent
8 8
Strongly agree Strongly agree
38 17
Agree Agree
38 42
Neither agree nor disagree Neither agree nor disagree
8 33
Disagree Disagree
8 0
Strongly disagree Strongly disagree
2014 Report on Senior Executive Succession Planning and Talent Development 12
Results are based on interviews with board members and Information about the IED Index, available at:
executives at 20 companies between June and December 2013. https://execsight.com/publicpdf/ied_index_pdf_21335.pdf
Quotes have been edited for clarity.
Survey data is based on surveys conducted by IED, Stanford
University and their affiliates, available at:
http://www.gsb.stanford.edu/cldr/research/surveys.html
Email: dlarcker@stanford.edu
Scott Saslow
Scott Saslow is the founder and CEO of
The Institute of Executive Development
(IED), a boutique consultancy that helps
clients drive innovation in executive and
senior leader development. He works with
organizations to create new development
strategies, assess effectiveness of
development practices, and consult with
boards and investors on succession
planning. IED works with many leading
global organizations such as American Express, Bank of New York
Mellon, CBS, Harvard Business School, Microsoft, Time Warner
and The U.S. Navy. IED has been recognized by Harvard
Business Review, Forbes, and Bloomberg BusinessWeek, and Mr.
Saslow is the author of over 20 articles and research reports on
executive development.
Email: scottsaslow@execsight.com
2014 Report on Senior Executive Succession Planning and Talent Development 14
About The Institute of Executive Development (IED) About The Rock Center for Corporate Governance
IEDs mission is to drive innovation in executive development. The Arthur and Toni Rembe Rock Center for Corporate
We support business executives, boards, and talent management Governance is a joint initiative of Stanford Law School and the
professionals to benchmark their practices using the IED Graduate School of Business at Stanford University. The Center
Index, design their strategies, and create high impact executive was created to advance the understanding and practice of
development services. corporate governance in a cross-disciplinary environment where
leading academics, business leaders, policy makers, practitioners
http://execsight.com/about
and regulators can meet and work together.
www.rockcenter.law.stanford.edu