Succession Planning : Introduction

Succession planning is not an issue that many organizations address in any systematic

way. Because many nonprofits are small (with fewer than 10 employees) and because

they may be facing other organizational challenges, thinking about who the next

executive director might be or what would happen if the director of finance suddenly left

is not high on their priority list.

There are many reasons why organizations need to be thinking about succession

planning. The most important reason, of course, is that we rely on staff to carry out our

missions, provide services and meet our organization's goals. We need to think about

what would happen to those services or our ability to fulfill our mission if a key staff

member left.

Another reason to focus on succession planning is the changing realities of workplaces.

The impending retirement of the baby boomers is expected to have a major impact on

workforce capacity. Teresa Howe in "Succession Planning and Management" identified

other emerging realities about the workforce in Canada:

Vacancies in senior or key positions are occurring in numerous organizations

simultaneously and demographics indicate there are statistically fewer people

available to fill them

Baby boomer retirements are on the rise just at the time when the economy is

growing and increasing the demand for senior management expertise

There is no emerging group of potential employees on the horizon as in past

generations (i.e. baby boomers, women entering the workforce, large waves of

immigration)

Many organizations eliminated middle manager positions during restructuring in

the 1980s and 90s and no longer have this group as a source to fill senior level

vacancies

Younger managers interested in moving up do not have the skills and experience

required because they have not been adequately mentored. This is because

middle managers, who would normally perform this type of coaching role, were

eliminated

With careful planning and preparation, organizations can manage the changes that

result from a generational transfer of leadership as well as the ongoing changes that

occur regularly when key employees leave an organization.

Although the type and extent of planning will be different, organizations both large and

small need to have some sort of succession plan. Effective succession planning

supports organizational stability and sustainability by ensuring there is an established

process to meet staffing requirements. Boards and executive directors can demonstrate

leadership by having the strategies and processes in place to ensure that these

transitions occur smoothly, with little disruption to the organization.

Example:- A mid-sized organization relied heavily on the corporate memory, skills and

experience of a longtime employee. In her final position, she was responsible for office

administration including payroll, budget monitoring and the organization's major annual

fundraising event. Over the course of her employment she held a variety of positions

and had a very good understanding of the organization's operations and history.

Her unexpected death was both an emotional blow and a wake up call to her

colleagues. Everything she had known about the organization was "in her head." While

discussions had occurred regularly concerning the need to document this information

and to pass this knowledge on to others - this had never happened. The organization

was able to regroup and survive the transition but the employees experienced high

levels of stress as they struggled to determine what needed to happen when. A great

deal of time and effort was spent recreating systems and processes and even then,

some things fell through the cracks resulting in the need to rebuild relationships with

supporters.

Succession planning : Defination

Succession planning is a process for identifying and developing internal people with

the potential to fill key business leadership positions in the company. Succession

planning increases the availability of experienced and capable employees that are

prepared to assume these roles as they become available. Taken narrowly,

"replacement planning" for key roles is the heart of succession planning. Effective

succession or talent-pool management concerns itself with building a series of feeder

groups up and down the entire leadership pipeline or progression (Charan, Drotter,

Noel, 2001). In contrast, replacement planning is focused narrowly on identifying

specific back-up candidates for given senior management positions. For the most part

position-driven replacement planning (often referred to as the "truck scenario") is a

forecast, which research indicates does not have substantial impact on outcomes.

Fundamental to the succession-management process is an underlying philosophy that

argues that top talent in the corporation must be managed for the greater good of the

enterprise. Merck and other companies argue that a "talent mindset" must be part of the

leadership culture for these practices to be effective.

Succession planning is a process whereby an organization ensures that employees are

recruited and developed to fill each key role within the company. Through your

succession planning process, you recruit superior employees, develop their knowledge,

skills, and abilities, and prepare them for advancement or promotion into ever more

challenging roles. Actively pursuing succession planning ensures that employees are

constantly developed to fill each needed role. As your organization expands, loses key

employees, provides promotional opportunities, and increases sales, your succession

planning guarantees that you have employees on hand ready and waiting to fill new

roles.

Research indicates many succession-planning initiatives fall short of their intent

(Corporate Leadership Council, 1998). "Bench strength," as it is commonly called,

remains a stubborn problem in many if not most companies. Studies indicate that

companies that report the greatest gains from succession planning feature high

ownership by the CEO and high degrees of engagement among the larger leadership

team

Companies that are well known for their succession planning and executive talent

development practices

include: GE, Honeywell, IBM, Marriott, Microsoft, Pepsi and Procter & Gamble.

Research indicates that clear objectives are critical to establishing effective succession

planning.These objectives tend to be core to many or most companies that have well-

established practices:

Identify those with the potential to assume greater responsibility in the

organization

Provide critical development experiences to those that can move into key roles

Engage the leadership in supporting the development of high-potential leaders

Build a data base that can be used to make better staffing decisions for key jobs

In other companies these additional objectives may be embedded in the succession process:

Improve employee commitment and retention

Meet the career development expectations of existing employees

Counter the increasing difficulty and costs of recruiting employees externally

Business Exit Planning

With the global proliferation of Small and Mid-sized Enterprises (SME’s), issues of

business succession and continuity have become increasingly common. When the

owner of a business becomes incapacitated or passes away, it is often necessary to

shut down an otherwise healthy business. Or in many instances, successors inherit a

healthy business, which is forced into bankruptcy because of lack of available liquidity to

pay inheritance taxes and other taxes. Proper planning helps avoid many of the

problems associated with succession and transfer of ownership.

Business Exit Planning is a body of knowledge which began developing in the United

States towards the end of the 20th century, and is now spreading globally. A Business

Exit Planning exercise begins with the shareholder(s) of a company defining their

objectives with respect to an eventual exit, and then executing their plan, as the

following definition suggests:

Business Exit Planning is the process of explicitly defining exit-related objectives for the

owner(s) of a business, followed by the design of a comprehensive strategy and road

map that take into account all personal, business, financial, legal, and taxation aspects

of achieving those objectives, usually in the context of planning the leadership

succession and continuity of a business. Objectives may include maximizing (or setting

a goal for) proceeds, minimizing risk, closing a Transaction quickly, or selecting an

investor that will ensure that the business prospers. The strategy should also take into

account contingencies such as illness or death.

All personal and business aspects should be taken into consideration. This is also a

good time to plan an efficient transfer from the point of view of possibly applicable

estate taxes, capital gains taxes, or other taxes.

Sale of a business is not the only form of exit. Forms of exit may also include Initial

Public Offering, Management Buyout, passing on the firm to next-of-kin, or even

bankruptcy. Bringing on board financial strategic or financial partners may also be

considered a form of exit, to the extent that it may help ensure succession and survival

of the business.

In developed countries, the so-called “baby boomer” demographic wave is now reaching

the stage where serious consideration needs to be given to exit. Hence, the importance

of Business Exit Planning is expected to further increase in the coming years.

Field of succession management

There is a substantial body of literature on the subject of succession planning. The first

book that addressed the topic fully was "Executive Continuity" by Walter Mahler. Mahler

was responsible in the 1970s for helping to shape the General Electric succession

process which became the gold standard of corporate practice. Mahler, who was

heavily influenced by Peter Drucker, wrote three other books on the subject of

succession, all of which are out of print. His colleagues, Steve Drotter and Greg Kesler,

as well as others, expanded on Mahler's work in their writings. "The Leadership

Pipeline: How to Build the Leadership Powered Company," by Charan, Drotter and Noel

is noteworthy. A new edited collection of materials, edited by Marshall Goldsmith,

describes many contemporary examples in large companies.

Most large corporations assign a process owner for talent and succession management.

Resourcing of the work varies widely from numbers of highly dedicated internal

consultants to limited professional support embedded in the roles of human resources

generalists. Often these staff resources are separate from external staffing or recruiting

functions. Some companies today seek to integrate internal and external staffing.

Others are more inclined to integrate succession management with the performance

management process in order simplify the work for line managers.

Succession Planning - A 5 Step Process

Step 1: Identify critical positions

Critical positions are the focus of succession planning efforts. Without these roles, the

department or agency would be unable to effectively meet its business

objectives. Workforce projection data or demographic analysis is essential in identifying

risk areas. A risk assessment may also be conducted and compared to current and

future vacancies to identify critical positions within your organization.

Step 2: Identify competencies

A clear understanding of capabilities needed for successful performance in key areas

and critical positions is essential for guiding learning and development plans, setting

clear performance expectations, and for assessing performance. By completing the

process of competency or position profiling within your organization, current and future

employees gain an understanding of the key responsibilities of the position including the

qualifications and behavioural and technical competencies required to perform them

successfully.

Step 3: Identify succession management strategies

Now that critical positions have been identified and have been profiled for

competencies, the next step is to choose from a menu of several human resource

strategies, including developing internal talent pools, onboarding and recruitment to

address succession planning.

Step 4: Document and implement succession plans

Once strategies have been identified, the next step is to document the strategies in an

action plan. The Succession Planning: Action Plan provides a mechanism for clearly

defining timelines and roles and responsibilities.

Step 5: Evaluate Effectiveness

To ensure that the department or agency’s succession planning efforts are successful, it

is important to systematically monitor workforce data, evaluate activities and make

necessary adjustments.

Why is succession planning important?

The benefits of good succession planning include:

A means of ensuring the organization is prepared with a plan to support service

continuity when the executive director, senior managers or key people leave

A continuing supply of qualified, motivated people (or a process to identify them),

who are prepared to take over when current senior staff and other key

employees leave the organization

An alignment between your organization's vision and your human resources that

demonstrates an understanding of the need to have appropriate staffing to

achieve strategic plans

A commitment to developing career paths for employees which will facilitate your

organization's ability to recruit and retain top-performing employees and

volunteers

An external reputation as an employer that invests in its people and provides

opportunities and support for advancement

A message to your employees that they are valuable

The absence of a succession plan can undermine an organization's effectiveness and

its sustainability. Without a succession planning process, an organization may not have

a means of ensuring that the programs and services that are crucial to its operation are

sustained beyond the tenure of the individual currently responsible for them.

A succession plan ensures that there are qualified and motivated employees (or a

means of recruiting them) who are able to take over when the executive director or

other key people leave an organization. It also demonstrates to stakeholders such as

clients, funders, employees and volunteers that the organization is committed to and

able to provide excellent programs and services at all times, including during times of

transition.

Example:- A mid-sized arts organization lost an employee who had been hosting,

organizing and managing a major fundraising event for a number of years. When he left,

staff knew very little about how it was put together and there was no operations manual

documenting the event. This very important event ended up being abandoned by the

organization because they simply did not know how to run it.

Who is responsible for succession planning?

Both the board and the executive director have pivotal roles to play in succession

planning.

The board is responsible for succession planning for the executive director position. The

board hires the executive director to ensure it has a skilled manager at the helm to

implement the organization's mission and vision. It is therefore very important for boards

to spend some time reflecting on what they would do if, or when, the executive director

leaves. All too often, boards find that they are unprepared for such an occurrence and

are left scrambling to quickly replace that person. There are many examples of an

executive director leaving only to have the organization fall into disarray: funders

withdraw resources, and other key staff members leave due to lack of effective

leadership. Even when provided with adequate notice, boards sometimes find

themselves in the position of having to scramble to find an interim solution.

The executive director is responsible for ensuring a succession plan is in place for other

key positions in the organization. These will likely be developed with help from the

management team with input from implicated employees.

Good Practise

To ensure the process is fair and the succession plan considers different perspectives,

ask for input from all key stakeholders.

What are some challenges to effective succession planning?

Some challenges to succession planning are:

Size of the organization: some nonprofits have so few positions that they may not

have the ability to offer opportunities for advancement; employees with the

potential and the desire to advance their careers may move to larger

organizations as a result

Lack of financial resources: employees may leave for better salaries and benefits

offered in other workplaces

The nature of funding: as more and more organizations depend on project

funding as opposed to core funding, there are fewer core staff members available

to take up positions in the organizations

Project staff come and go and may not be seen to be part of the talent pool

available to organizations

In some cases, senior leaders are staying on in their positions, despite the fact

that the skills needed for the job may have changed or they are no longer making

a meaningful and productive contribution to the organization

Indiscriminate inclusion of employees in the succession plan including those who

are disinterested, unmotivated or lack capacity to advance

Inadequate training and development resulting in an employee who is not

prepared for a promotion

A plan that does not promote people in a timely fashion, leading potential

successors to leave the organization to seek new opportunities

Poor communication resulting in confusion and turmoil within the organization as

staff speculate about what the succession plan really is

Potential candidates for promotion cannot be guaranteed that they will be

promoted; a lot depends on timing and need of the organization

Succession planning in small and mid-sized organizations

In many smaller organizations, succession planning may be viewed as a luxury,

but it isn't. At the very least, boards of directors have a responsibility to consider

and plan for the departure of the executive director, who is often critical to the

existence and sustainability of the organization.

When faced with the loss or impending loss of an executive director, these kinds

of questions quickly surface:

Should we hire from within or look for an external candidate?

Do we have anyone internally who is qualified?

Whether we hire internally or externally; does anyone really know the specifics of

what that person was doing?

What kind of impact will this change have on our capacity to deliver on our

mandate and on our relationships with our clients, donors and volunteers?

What do we tell our stakeholders?

Developing a succession plan for the executive director

In some instances, the board may decide that there needs to be a "second in

command" who has the capacity to replace the executive director in the future. This

means:

Identifying that person in collaboration with the executive director

Ensuring that the person is motivated to take on the top job

Developing a plan to ensure that the eventual successor gains the requisite skills

and knowledge to take the job on

Ensuring that the second in command is exposed to a broad range of

experiences so that he or she has a wider understanding of the operations of the

organization

The plan could include a formalized process of mentoring or coaching and training in

more specific aspects of the job. When the size of the organization permits, it would be

preferable to have more than one person identified as a potential successor to the

executive director.

In a small nonprofit, it may not be possible to groom a successor from within the ranks

of existing staff. To ensure continuity and stability when an executive director leaves,

employees may be paired to cross-train each other to ensure there are two people on

staff who know each job.

The board chair should have a conversation with the executive director on an annual

basis regarding his or her career aspirations. While the executive director is not required

to share any career goals, the conversation can allow for a frank discussion about future

plans.

Steps to put in place

First and foremost, the board is responsible for drawing up a plan of action and

effectively communicating it to the rest of the staff as soon as possible. This is

necessary to demonstrate that the board is taking decisive action, to deal with any

misinformation that may be generated by a quick departure and to ensure that all of the

employees' questions are answered.

The board must also communicate its plan of action for replacing the executive director

in a timely manner with its funders. Funders will need to be assured that plans and

programs are on target and deliverables will not change.

With no succession plan or second in command identified, the board may want to name

an interim executive director until a replacement is selected. This choice should be

made wisely because someone with the right skills and knowledge needs to be chosen.

If a person is asked to take on the executive director responsibilities in addition to his or

her job, there should be an adjustment in that employee's compensation to reflect the

additional responsibilities and work load.

Another option is to ask a qualified group of two or three employees to co-manage the

organization by sharing the executive director responsibilities. In order for this approach

to be effective, it requires a clear understanding of the various aspects of the executive

director 's position so that tasks may be given to those with ability to take them on. It

also requires ongoing communication and coordination between the employees that are

part of the co-management team.

If there are no employees able or willing to take on the task on an interim basis, a board

member may be asked to temporarily assume these functions. Of course, the board

member will have to resign from the board if he or she takes on a paid position with the

organization.

Succession planning in larger organizations

The steps outlined below provide a roadmap for larger organizations interested in

developing succession plans. Different organizations will implement these activities

differently. While there is no right or wrong way to develop a succession plan, the

following provides important components that need to be considered.

Capacity and needs assessment

Step 1

Identify key positions for your organization. These include the executive director, senior

management and other staff members who would, for their specialized skills or level of

experience, be hard to replace. Ask yourself which positions would need to be filled

almost immediately to ensure your organization continues to function effectively.

Step 2

Review and list your current and emerging needs. This will involve examining your

strategic and operational plans to clearly articulate priorities.

Step 3

Prepare a chart that identifies the key positions and individuals in the organization. The

positions might include those listed in step 1 and/or others that are pertinent to your

organization, such as volunteers.

Step 4

Identify and list the gaps by asking questions such as:

Which individuals are slated to or likely to leave (through retirement, project

completion, etc.) and when?

Which new positions will be required to support the strategic plan?

Which positions have become or will become obsolete (for example, those

related to a program that has been terminated)?

What skills and knowledge will need to be developed (for example, to support a

new program)?

Step 5

Evaluate/assess all staff members with the goal of identifying those who have the skills

and knowledge or the potential along with the desire to be promoted to existing and

new positions.

The evaluation can be formal or informal and can include, but is not limited to,

performance reviews, 360 degree assessments and informal conversations with

the individuals under consideration.

The executive director may be aware that an employee has aspirations to and

the capacity to move up. This may be an opportunity to recognize this goal and

support it.

Take this opportunity to give younger workers a chance. Many young people

enthusiastically enter the sector and then, finding few opportunities for

advancement, leave. Younger workers can remain engaged if you help to match

their interests to opportunities provided through effective succession planning.

Develop and implement the plan

Based on the evaluation and on the requirements of your strategic plan, identify the key

person or people you will want to develop and nurture for the future, the position you

would like to groom them for, and the timeframe required to prepare them. Consider

different ways of developing your employees like: self-development, books/journals,

mentor programs, special project work.

Identify the career paths that the selected individuals should be following. Customize

the path to fit the individual's abilities and talents by developing an action plan. The plan

must be dynamic - able to be changed as the individual's and the organization's needs

change. It must also consider the specific needs, learning styles and personalities of the

individuals involved in order to be effective.

Formalize education, training, coaching, mentoring and assessment activities. The mix

of activities included within the action plan should be linked to timelines and specific

outcomes.

If possible, move people into different areas for experience and training before they are

needed in critical positions. Have individuals job-shadow for an agreed upon period of

time to give the successor a real sense of the responsibilities and to allow the

organization the chance to determine whether the individual really is suited for the new

position.

Monitor and manage the plan

As people leave and new people assume their responsibilities, the plan will have to be

updated to identify the next person to be groomed for promotion and the requirements

of his or her individual action plan. For organizations that engage in an annual (or

regular) strategic planning process, the succession plan should be included in that

discussion.

Be prepared to address issues such as concerns of staff who have not been selected

for career advancement. Ensure alternative paths are identified to allow all employees

who are interested in career enhancement to be given some type of professional

development opportunity. Professional development can include such wide ranging

activities as formal education and training, workshops and seminars as well as less

formal learning opportunities such as the chance to represent the organization at a

consultation.

Recognize that no matter how well you plan, something can still happen which the

succession plan doesn't address. For example, you may have dutifully trained a

"second" only to have that person leave. Even though there may be no one able to fill

the breach immediately, the succession plan will ensure that there is a process for you

to follow in filling the position.

Arieu Family Business Succession Mode

Arieu proposed a model in order to classify family firms into four scenarios: political,

openness, foreign management and natural succession.

POLITICAL SCENARIO: This is the case of a company linked to a large family, where it

is expected that through inheritance, the property was spray quickly, possibly faster

than the growth of own business, resulting in a dividend per head lower and lower.

Identifying suitable members in the family can incorporate to address and possibly

distinguish who may occupy the general direction afterwards. However, the existence of

many members in the family can turn into conflicts of power, making it necessary to

establish agreements and occasionally reorganize the business in terms of those

individuals who, because of the obvious professional and human qualities can be

recognized as leaders. In many cases this may mean separate reorganization to create

new companies and business units.

OPENESS: When members of the next generations are numerous and among them is

not possible to identify a person who possesses the characteristics necessary to

assume leadership positions with expertise in family business, we have a scenario that

we call Open, since the strategy more suitable for this type of organization is to shift

some capital to others who can provide not only management skills but also liquidity for

family members. This will succeed in securing the future of the business, creating more

value for society and retention of jobs for their employees, not to please the family,

getting money and avoid future complications.

FOREIGN MANAGEMENT: This scenario occurs when family members who control the

business are not many, and yet, not having any of its members with a natural profile of

leadership succession when they choose to appoint a non-family CEO .

NATURAL SUCCESSION: Families seeking to preserve its legacy business are the

most favorable conditions in the presence of a stage of natural succession. This is the

case of a company controlled by a few families, few heirs who in turn have identified

among them a worthy successor, a strong name also is associated with the adequacy

enough to drive its growth, the ability to run the organization, understanding market and

commitment which means only a part of the family patrimony is also a source of value to

society, other shareholders, customers, suppliers and even their own employees

(stakeholders).this will help in improved succession planning.

Process & Practices

A Prior preparation needs to be done for the replacement of a CEO in family firms. The

role of advisors is important as they help with the transition of leadership between the

current generation leaders and the successors. Advisors help family owned businesses

establish their own leadership skills. This process is relatively long if the successors

want to be accepted by all employees. They need to take higher managing position

gradually to be respected. During this process, the successors are asked to develop

different skills such as leadership. This is where the role of advisors fully exemplifies its

importance. It is when the managing position is shared between the first generation

leader, the second and the advisors. An advisor helps with communication because

emotional factors between family members can affect badly the company. The advisors

help manage everything during a predetermined period of time and make the

succession process less painful and eventful for everybody. In these cases, an interim

leadership is usually what is best for the company. The employees can get accustomed

to changes while getting to know the future CEO.

Companies devise elaborate models to characterize their succession and development

practices. Most reflect a cyclical series of activities that include these fundamentals:

Identify key roles for succession or replacement planning

Define the competencies and motivational profile required to undertake those

roles

Assess people against these criteria - with a future orientation

Identify pools of talent that could potentially fill and perform highly in key roles

Develop employees to be ready for advancement into key roles - primarily

through the right set of experiences.

In many companies, over the past several years, the emphasis has shifted from

planning job assignments to development, with much greater focus on managing key

experiences that are critical to growing global business leaders. North American

companies tend to be more active in this regard, followed by European and Latin

American countries.

PepsiCo, IBM and Nike are current examples of the so-called "game planning"

approach to succession and talent management. In these and other companies annual

reviews are supplemented with an ongoing series of discussions among senior leaders

about who is ready to assume larger roles. Vacancies are anticipated and slates of

names are prepared based on highest potential and readiness for job moves.

Organization realignments are viewed as critical windows of opportunity to create

development moves that will serve the greater good of the enterprise.

Assessment is a key practice in effective succession planning. There is no widely

accepted formula for evaluating the future potential of leaders, but there are many tools

and approaches that continue to be used today, ranging from personality and cognitive

testing to team-based interviewing and simulations and other assessment center

methods.Elliott Jaques and others have argued for the importance of focusing

assessments narrowly on critical differentiators of future performance. Jaques

developed a persuasive case for measuring candidates' ability to manage complexity,

formulating a robust operational definition of business intelligence.[7] The Cognitive

Process Profile (CPP) psychometric is an example of a tool used in succession planning

to measure candidates' ability to manage complexity according to Jaques' definition.

Companies struggle to find practices that are effective and practical. It is clear leaders

who rely on instinct and gut to make promotion decisions are often not effective.

Research indicates that the most valid practices for assessment are those that involve

multiple methods and especially multiple raters[8] "Calibration meetings," composed of

senior leaders can be quite effective judging a slate of potential senior leaders with the

right tools and facilitation.

With organisations facing increasing complexity and uncertainty in their operating

environments some suggest a move away from competence based approaches.[9] In a

future that is increasingly hard to predict leaders will need to see opportunity in volatility,

spot patterns in complexity, find creative solutions to problems, keep in mind long term

strategic goals for the organisation and wider society, and hold onto uncertainty until the

optimum time to make a decision.

Professionals in the field, including academics, consultants and corporate practitioners,

have many strongly held views on the topic. Best practice is a slippery concept in this

field. There are many thought pieces on the subject that readers may find valuable such

as "Debunking 10 Top Talent Management Myths", Talent Management Magazine,

Doris Sims, December 2009. Research-based writing is more difficult to find. The

Corporate Leadership Council, The Best Practice Institute (BPI) and the Center for

Creative Leadership, as well as the Human Resources Planning Society are sources of

some effective research-based materials.

Over the years, organizations have changed their approach to succession planning.

What used to be a rigid, confidential process of hand-picking executives to be company

successors is now becoming a more fluid, transparent practice that identifies high-

potential leaders and incorporates development programs preparing them for top

positions.[10]Today, corporations consider succession planning a part of a holistic

strategy called “talent management”. According to the company PEMCO, “talent

management is defined as the activities and processes throughout the employee life

cycle: recruiting and hiring, onboarding, training, professional development,

performance management, workforce planning, leadership development, career

development, cross-functional work assignments, succession planning, and the

employee exit process”.[11] When managing internal talent, companies must “know

whether the right people, are moving at the right pace into the right jobs at the right

time”.[12] An effective succession planning strategy, coupled with solid career

development programs, will help paint a more promising future for employees.

Ideas for recruiting for other key positions

The following ideas can be incorporated into your succession plan for key positions in

the organization other than the executive director.

Look to other organizations for exceptional employees

New employees are often found in other nonprofits. While some may view this as

poaching, the reality is that employees who aren't being challenged or aren't happy will

leave the organization for a better opportunity. In some cases, employees have been

known to leave for a position in another organization but return years later with new

experiences and skills. Helping to keep exceptional employees in the sector by allowing

them to move around to develop their careers should be seen not as a loss for

individual organizations, but as a gain for the capacity of the sector.

An innovative approach would be to develop a pool of candidates with other

organizations and develop a rotational program to allow key employees to move from

one organization to the next. This approach would ensure key individuals remain

challenged and motivated while a group of nonprofits all benefit from the expertise.

Look to your organization's volunteers

There may be board members or volunteers in other positions within the organization

with the talent, knowledge and experience who can effectively make the transition to a

paid position.

Look to project staff (either current or those who did project work for your

organization in the past)

As a result of a shift from core funding to project-based funding, there are more and

more project staff who move from organization to organization with short contracts.

These people will often have gained information about your organization's operations

and could move seamlessly into a core staff position.

Look to consultants (either those that have worked with your organization or

other similar organizations)

While most consultants may prefer to stay in their line of business, there are those who

would like to become staff members, if asked. In some cases, consultants worked for a

nonprofit before becoming a consultant and are interested in moving back into the

sector to work.

Succession Planning : The Indian Perspective

In the last decade, as governance mechanisms have been implemented in corporate

India, the need for a comprehensive succession strategy has found favour within

companies. However, in spite of growing acceptance, actual implementation is still

not widespread, with only a few companies investing the time and effort required to

build a succession strategy.

The commonly held belief is that succession must be smooth and well planned for it

to be successful. While having a process in place is important, R Seshasayee, Ashok

Leyland Limited, expresses it differently: “I like to see succession as an opportunity

for change. Every organisation, I believe, needs a booster every 7–10 years to take it

to the next level. And therefore, it is very useful to look at succession, particularly at

the CEO level, as an opportunity for taking the organisation to another step, another

trajectory and another big change.” Succession enables companies the opportunity

to break from the linear path and give new life to the creative ability of their leaders,

which can peak and then move down the arc over time. Hence, succession may not

always result in smooth change for an organisation, but could give rise to discontinuous,

though not necessarily disruptive change. If companies understand this,

they will begin to view succession planning as a necessity for growth, rather than

simply a question of filling a leadership gap.

Succesion & boards

driven by compliance with governance statutes, defeating the very purpose of the

exercise, which is to build an active, effective board capable of giving direction to

management on strategic issues. The last decade has seen a transition in this area,

with forward-looking companies wanting to construct boards that comprise individuals

with the right ‘fit’ who are able to contribute constructively to discussions

in the boardroom. However, the percentage of listed companies with such boards

in India is still small, and a lot more needs to be done to make board succession a

strategic exercise.

Before defining a succession process, companies also need to understand the

critical aspects of board functioning. Truly engaged boards spend a lot of time on

strategic business issues, rather than merely on statutory and compliance issues.

In addition to financial performance and budget presentations, some companies

ensure that at least one relevant business issue is discussed at every board meeting,

whether it be M&A strategy, IT, business expansion or corporate social responsibility,

to name a few. As Harsh Mariwala, Marico Limited, explains: “To me, what is

important is the composition of the board, what gets discussed on the board and

the interaction between the board and the team. This constitutes succession for me.”

CEO Succesion

In India, the issue of CEO succession is more sensitive in the case of family-owned

businesses. At the same time, there is anecdotal evidence in India and abroad

indicating that family-owned businesses have added much more shareholder value

than so-called professionally run companies. Hence, while building a succession

strategy it is important to develop processes that draw on the inherent strengths of

these businesses, and align them with corporate governance principles.

Furthermore, succession needs to address the high mobility that is beginning to

happen in Indian companies, particularly among younger people. This is bound to

increase, not decrease, over time. The key challenge for companies is to implement

succession planning in the context of this high level of mobility and enable transitions

without disrupting operations.

There is only a handful of family-owned companies that have understood the need to

separate of ownership from management, and who have voluntarily separated share

ownership from the control of the board. The bulk of the Indian corporate sector

still consists of family-controlled boards and family-controlled management teams.

As R Seshasayee explains: “Separation of ownership and management in family

businesses is still the exception rather than the rule. In order to make this transition,

forward-looking companies will need to continue to prove that such a separation

contributes to shareholder value and is a successful model for the family itself. Only

then will we find companies following suit.”

Companies are exploring different ways to incorporate succession planning at the

senior leadership level. Marico Industries divided the strategy into two parts: defining

a process for a ‘drop-dead’ successor, and developing internal talent. The CEO,

who is a family member, has appointed the individual who would take his place in

the event of an emergency. However, this individual would hold the reins only for the

short-term, defined here as six months. It would then be the board’s responsibility

to let this individual continue in the role or identify a permanent successor, either from

the internal talent pool or from outside. The company has implemented

this process for the entire top management and considers it a strong succession

strategy.

Succession Planning Case Studies: GM Solid, Microsoft Sucky

An HR nerd like me sees news from the business world dealing with hiring, succession

and promotional decisions as fascinating. Big public companies allow you a peek into

how decisions are made and how good or how bad they are in these key areas.

Last week, Dan Akerson, the current CEO of GM, decided he wanted to accelerate his

retirement to care for his ailing wife. No worries, said GM’s Board. They were ready with

a series of six succession moves, including naming the first female automaker CEO.

Good work, GM. Pretty logical, well thought out and organized. I’ll call that solid.

Compare and contrast that to Microsoft, whose CEO search selection process I will

describe as “sucky.”

Steve Ballmer and the Board both decided he needed to go, so they made their

announcement and let Ballmer give a Tommy Boy-esque farewell speech to the crowd.

The Board announced they had retained an external search firm to assist. Big decision

and they should take their time, right?

Now, three months later, maybe not. Jean-Louis Gassée at MondayNote.com wrote a

detailed and scathing analysis, Microsoft CEO Search: Stalemate. Here are some

excerpts, and then catch my take after the jump:

The Microsoft CEO Succession process appears to be stalled. This is a company with

immense human, technical, and financial resources; the tech industry is filled with

intelligent, energetic, dedicated candidates. … For a large, established company,

having to use an executive recruiter to find its next CEO carries a profoundly bad

aroma. It means that the directors failed at one of their most important duties:

succession planning. Behind this first failure, a second one lurks: The Board probably

gave the previous CEO free rein to promote and fire subordinates in a way that

prevented successors from emerging.

… there’s no dearth of capable executives with the brains and guts to run Microsoft.

These are people who already run large corporations, or are next-in-line to do so. Exec

recruiters worth the pound of flesh they get for their services have e-Rolodexes full of

such people — some inside the company itself. Now, place yourself inside the heart and

mind of this intelligent candidate:

‘Do I want to work with that Board? In particular, do I want Bill Gates and his pal Steve

Ballmer hovering over everything I do? I know I’ll have to make unpopular decisions and

upset more than a few people. What’s in it for me – and for Microsoft – in a situation

where unhappy members of the old guard would be tempted to go over my head and

whine to Bill and Steve? How long would I last before I get fired or, worse, neutered and

lose my mind?’

Gassee is right—two main issues here: First, How can no one inside Microsoft be

considered for the CEO role? Ballmer had been in the role for twelve years. Did they

think he was Warren Buffet (41 years as CEO)? He got no one ready in twelve

years? What the heck has he been doing?

The other challenge that Gassee highlights, of course, is that the role just isn’t

attractive. I pity the recruiter: “Tom? How you doing? Hey, how would you like to take

over as only the third CEO of the highly visible, bloated and troubled Microsoft corporate

juggernaut? Yep, Bill’s still around. Hello? Hello?”

Good luck with that.

Observation : M’s succession planning is admirably efficient. Microsoft suffered from

the founder – leader syndrome when Bill Gates retired but have no excuse for failing to

organize a successor to Ballmer. There is a lesson here for all organizations – internal

recruitment and succession planning not only help your organizations manage difficult

transitions they also provide employees with a sense of a carrier path. In contrast a lack

of clear succession planning at the top sends entirely the wrong message to the rest of

the organization.

Tips for successful succession planning

Secure senior management and board support for a succession planning process. This

gives employees and staff an understanding of how important succession planning is to

the organization.

Review and update your succession plan regularly. This ensures you reassess your

hiring needs and determine where the employees identified in the succession plan are

in their development.

Develop procedure manuals for essential tasks carried out by key positions. Include

step-by-step guidelines.

Adequate time should be provided to prepare successors. The earlier they are

identified, the easier it is on the individual to be advanced and on other employees

within your organization who will know whether certain options are available to them.

Understand that your succession plan will be a unique reflection of your organization.

Succession plans are as different from each other as the organizations for which they

are developed.

Conclusion

As long as a company is growing, there will always be the need for change and

succession planning needs to be part of that change. What is important is that the

implementation of a succession strategy needs to be systematic. It cannot be ad

hoc, since that would defeat the very purpose of the exercise. And while the finer

details will differ from company to company, there need to be processes built on a

firm understanding of a company’s talent needs.

In terms of board succession, the critical success factor will continue to be broadening

the database of qualified and responsible individuals to invite on to the board.

The aim should be that a board does not miss out on any individual who may be

relevant from the point of view of the business, resulting in a board that is capable

and competent — a board that is not merely compliant, but active and capable of

giving clear and constructive guidance to the executive management.

Succession at the executive level, whether the CEO or the whole senior management

team, highlights need to create a sufficiently broad talent pool within the organisation.

It is the responsibility of a company to build this process, which should not

only be related to a particular functional area, but should be relevant for the purpose

of moving a person up to the CEO level. This needs to be achieved by testing many

dimensions of a person, not just his ability to produce profit.

At the same time, the need for transparency in the succession process is critical.

Transparency is not only necessary within the organisation, but across the external

stakeholder community as well, including investors, customers and analysts. Only

then will the process be truly successful