How Corporate Succession Planning Works & How to Take Advantage

Passing the keys

“Amid the twofold pressure of pending retirement in senior executive ranks and the increasing value of intellectual capital and knowledge management, it is more necessary than ever before for organizations to plan for leadership continuity and employee advancement at all levels.”

— William Rothwell, Corporate Succession Planning

It’s commonly understood that one of the essential missions of a forward-thinking company is to preserve the corporate integrity, leadership capability, and financial resourcefulness of the organization in the event something unforeseen happens to one or more key executives. This is why, in firms of all sizes, it’s important to have “key-man insurance” in place, as well as other legal and financial instruments to maintain the continuation and well-being of the corporation. A consulting firm specializing in corporate succession planning (CSP) points out the elements of planning analysis that are especially beneficial for family-owned businesses: Business objectives, family dynamics/objectives, owner/manager estate plans, key-employee compensation, business valuation, transition financing, tax planning, estate liquidity, active/inactive family-member issues, and senior-generation retirement security.

Larger corporations also often consider themselves to be a family. But just like human families, they run the risk of being ill prepared to handle the many contingent circumstances that can jeopardize the well-being of the organization and threaten its very existence. “Approximately 80% of today’s privately-held companies will not survive to the next generation of same-family ownership,” says Peter Handal, president/CEO/chairman of Dale-Carnegie Training. “The failure to establish a comprehensive succession plan is a leading cause of this phenomenon.  Every successful privately held business needs a corporate succession plan. Even if the business is young, or the next generation has not stepped forward, a succession plan should be implemented in order to avoid the hardships of an unplanned transition or worse, a government-dictated disposition. A good corporate succession plan is flexible, and changes as the circumstances of the business and its owners change.”

From another vantage point, CSP isn’t merely a proactive means to hedge against major loss by identifying key management figures that can fill any gap in executive leadership that occurs due to death, illness or unexpected departure of someone in the “C” suite CEO, CMO, CFO, etc. “Successful companies are certainly looking for corporate succession plans for the C-suite, but they’re also ensuring they have formal programs in place for critical roles within the organization,” says Julie Norquist Roy, vice-president of marketing at Cornerstone Ondemand, a firm that provides solutions for companies concerning matters such as employee learning, performance, and succession planning. An example she gives is project managers at engineering firms: “They’re often responsible for overseeing multi-million or billion-dollar projects.  Retaining and engaging these key people would be critical to the success of the bottom line.”

In point of fact, CSP can be viewed as an ongoing, proactive program to develop internal talent by grooming key players at all levels to achieve peak productivity, prepare for more challenging roles, and continually prove their worth to the organization. Those who do so capably and enthusiastically will be noticed and considered for promotional opportunities that will showcase their talents to an even greater extent.

Stated otherwise, it is important to increase the “bench strength” of individuals who make a solid contribution to the corporate team’s success. After all, the team leader is no more successful than those who follow his or her direction and work shoulder-to-shoulder to help the company maintain industry leadership. “In today’s leaner, flatter organization, leadership isn’t limited to people in the executive suites or corporate board rooms,” Handal says. “Now leadership is everybody’s business. Employees throughout a company recognize their role in fulfilling the company’s mission. They seek the right solutions to the hard challenges. They find strength in others.  And they motivate people to go for peak performance.”

Inherent Challenges

Properly understood, CSP is a function of human resource development that links the goals of strategic planning, talent management and career planning. To begin with, a top priority of progressive organizations is to develop programs and processes that give the organization a competitive edge in responding to changes in the market, enabling it to constantly improve its products or services and enhance its brand image. In this regard, it’s highly important to plan for significant changes in the market by developing talent that exhibits the resilience and flexibility to look outside the box and anticipate business trends well before they become the norm.

To this end, a central goal is to retain talented individuals who comprise the pool of likely candidates to be considered for major promotions. Everyone won’t reach the C-suite, but some will. Everyone in the C-suite won’t be a logical candidate for senior-level management, but again, some will.

Corporations are evolving entities. Change happens, planned or unplanned, welcomed or not. It is a fiduciary responsibility of the board of directors to ensure smooth transition of senior leadership whether due to filling emergency vacancies or planning for an executive’s retirement.

In smaller companies such as family businesses, succession planning takes on a more personal tone. All the family has built could be at risk if the person at the helm doesn’t steer the ship in the right direction.

Developing executive leadership by promoting from within sends signals that it is worthwhile to consider a lengthy tenure with the company. After all, if those who have proven themselves as rising stars cannot realistically aspire to move up the managerial ladder, why should they plan on continuing their association with the organization? On the other hand, Handal notes, “When considering a rising star to step into a greater role, managers usually consider his/her ability to be assertive without stepping on people’s toes or egos, prevent miscommunication, manage conflicts with ease, and strengthen relationships with co-workers, vendors and customers. Therefore, when an individual wants to improve in the area of interpersonal skills, the best way is to build credibility through communication and behavior, develop critical listening skills, and enhance conversational skills. All of these areas are essential to paying attention to the needs of clients as well as colleagues.”

In some instances, bringing in an outsider to lead the company may be good if the predecessor was ineffective in his or her leadership style or abilities. A fresh face, new spirit and energy can add to the dynamics of a firm supple enough to support a new brand of leadership.

However, be aware it may also have the unintended effect of prompting other key senior managers to jump ship. Why stay to be groomed for a slot likely to be filled from the outside?

Maintaining orderly transition of managerial authority that perpetuates the corporate vision, advances the corporate mission, and embodies corporate values is one of the most challenging aspects of CSP.  If the company is publicly owned, a seamless transition sends signals to investors and customers that the company is on solid footing and their interests will be recognized and preserved.

Succession Planning and Workforce Diversity

Effective succession planning should be viewed as a proactive means of identifying who is ready to move up now and who can be expected to take on more responsibility in the future.

Corporate decision-makers are well advised to consider the benefits of workplace diversity as a means of spotlighting exceptionally qualified individuals who otherwise might have been overlooked.  Introducing corporate body career-minded individuals with different business and consumer perspectives, cultural insights and global awareness enriches the intellectual capital of the organization. “Workforce diversity across leadership and critical roles increases the likelihood of getting the very best talent possible because it creates a larger pool to choose from,” Roy explains.

In a fully diversified work setting, highly talented individuals will emerge from the shadows and enter more easily into the spotlight for promotional consideration. Unlimited by gender, ethnic, or cultural differences, exceptionally qualified associates are free to compete on a more level playing field and demonstrate their worth both in terms of what they offer at the present, and in regard to their future contribution.

But upward mobility, even for diversity candidates, is not a given. There are core business and interpersonal skills that need to be developed and honed to prepare women and minorities to move into roles that prepare them for corporate succession planning. “In the corporate world, many executive women and diversity candidates still feel they must overachieve in order to climb up the corporate ladder,” Handal says. “Statistics support the challenge this group faces when aiming to reach higher status within their respective company.  According to Forbes.com, the Chicago Network’s 2006 annual census of Chicago’s top 50 companies found that, for the first time in nine years, executive representation by women declined, despite more positions of this status opening. However, I believe that mastering key skills, including relationship building and communications, is vital to the achievement of professional growth.”

Advice for Young Executives

“Corporate succession plans shouldn’t be limited to siloed departments within organizations,” says Roy. “Junior executives should broaden their opportunities and consider roles with other divisions or groups, and then pursue training to support a new direction in their career path.”

As an ambitious, MBA-prepared professional, how do you fit in to the scheme of things regarding corporate succession planning at your place of employment? Here are some pragmatic approaches to increase the likelihood of being considered a sterling candidate for CSP:

Demonstrate that you add bench strength to whatever corporate team you support. Make it difficult for the company to even think about replacing you. As a creative problem-solver, dependable team member, and someone who puts the concerns of the organization above personal gain, you’ll be seen as someone who should be considered a key player in any succession scenario.

Develop a professional reputation for excellence in all that you do. Corporate executives identify early on the most promising employees who have the potential to move up the ladder into strategically important roles. The most promotable associates appearing on the radar screen are those who continually increase their skill sets and responsibilities, eagerly assume more challenging projects/responsibilities, and inspire others to reach their levels of peak productivity.

Exhibit the personal traits of someone in whom the welfare of the organization can be entrusted. CSP candidates do more than just perform well in their assigned roles; they can be trusted to advance the goals of the organization by embodying its guiding principles and mission.  In all they do, they typify the most favorable image the company wishes to project to all of its constituencies.

Communicate your desire to move up. While it’s unwise to be ambitious to the point of appearing cocky, it never hurts to toot your own horn in a low key. Often, extraordinarily talented individuals are passed over for promotional opportunities that would lead to corporate succession consideration simply because they haven’t indicated an interest in advancing.  During your annual review, among other times throughout the year, make sure you indicate willingness to assume additional responsibility and accountability that will make your service to the company all the more valuable.

Mentor with influential people in the company who can help to propel your career. They can be mid-level or senior executives willing to serve as personal mentors or sponsors for protégés who have the attributes for being considered viable candidates for CSP. With firsthand knowledge of company operations and internal politics, mentors can steer you past most career roadblocks. A solid mentoring program also benefits the firm, says Handal: “Mentoring provides employees the opportunity to learn the ropes within an organization.  It also allows management to keep a closer eye on employees’ successes and failures beyond the numbers. A mentor has a way of providing feedback to management that wouldn’t necessarily be reflected in the year-end status report. A mentoring program also allows employees to be evaluated on an individual level.”

Effective CSP is a roadmap allowing the most talented and ambitious leaders to demonstrate their present strengths and future potential. If you have the right stuff to follow it diligently and enthusiastically, it’s quite possible that one day, you’ll advance to a senior leadership role and even be invited to enter the C-suite.

Calvin Bruce is a freelance writer based in Atlanta with over 24 years experience in corporate recruitment and career counseling.

Image courtesy of Property Casualty 360

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