by Yasmin Glanville & Andrew MacDougall
Illustrations by Gerard Dubois

Imagine a company that had no plans to replace its CEO, no plans to hire successors for its senior leaders. What would happen to such an organization? In the fast-paced economy of today, it would surely lose its competitive positioning to companies with better future-ready succession planning. The recruitment and retention of CEOs and other senior leaders should be top priority for companies if they want to be well positioned for the future. Demand for the most talented executives already outweighs supply, and this disparity will only become starker in the approaching years.

To make things more difficult, companies have to plan in a marketplace that changes its customer base, client expectations, technology, organizational structure and information at breakneck speed. In today's economy, plans can easily become obsolete before they are implemented — planners need to stay several steps ahead.

So what does this mean in practical terms? What can a company do to prepare itself to deliver the next generation of CEOs as well as senior decision-makers?

To answer such questions, executive search firm Spencer Stuart conducted an in-depth research study of more than 200 CEO transitions at large Canadian publicly traded companies (median revenue exceeding $1 billion). This involved extensive qualitative analysis and quantitative analysis over six years and interviews with CEOs and many chairmen who were responsible for their selection. This was complemented by a 2002 study of ethical leadership, conducted by business and leadership transformation specialist Creative Transition Resources. It examined the ideas and practices of diverse industry leaders in Canada and abroad and investigated the requirements for the future.

Reflecting the new marketplace
In order to stay ahead of the times, corporate leaders must be able to understand and work with such variables as the socio-political and economic climate, the growth of international business, the increased cultural bandwidth caused by mergers and acquisitions, the drive of capital markets for short-term results, the changing values and expectations of customers, and the ubiquitous nature of the Internet. These external influences can have a tremendous impact on the competitive position and the future of the organization.

Good succession planning therefore demands that companies define, recruit and develop leaders who make tomorrow's ability to compete a priority at every level in the organization, instead of relying on traditional notions of strategic planning and thinking.

Characteristics of tomorrow's leaders
Unfortunately, there's no single checklist of experiences that flag a potential CEO successor as capable and ready to inherit the reins.

Many argue that in the years ahead, what we perceive today as fast-paced change will appear slow and ponderous in retrospect. As such, new leaders must have the capacity to act fast. CEOs will not have time for protracted strategic analyses and drawn-out planning processes. The marketplace simply will not wait. They must be equipped to make decisions quickly — even if it means implementing solutions that are still taking shape.

According to one senior human resources expert, "In Web years, seven years is like 25." So how do you predict 25 years from now how business will look? If it's futile to believe that we can accurately predict that far out, then imagine the futility of old-school thinking based on time-proven 100% perfect solutions that took months and years to research, analyze and plan for before taking action. By the time the plan is deployed, the problems or opportunities they were designed to address have often changed or disappeared. He says we need to have the wisdom and the courage to move into action quickly, even if the solution is only 60% defined.

In addition, leaders must understand and respond to the needs of a more ethnically diverse population of potential customers. To do so, leaders, teams and business practices need to represent the growing diversity of the customer landscape, including culture, language, ethnicity and values. This type of thinking needs to be integrated into every aspect of the company's culture, back- and front-end processes and work practices. 

As business hierarchies dissolve into flatter, broader, connected and interdependent communities, the complexity and pace of change is a virtual blur. Competition is fierce and unpredictable. Customers have easier access to a plethora of real-time solution choices. They want instant answers to their needs, and they make decisions about staying loyal to one supplier based on how well and how quickly their needs are met.

Therefore, everyone who interacts with the customer — from the service desk to the CEO — must be able to represent the company by creating positive experiences that reinforce the positioning and values of the company. Customer experiences can rapidly be shared as stories that positively or negatively influence others.

New-world leadership is also about creating whole-person relationships (relationships that take into account other aspects of the individual's life outside of business) with multi-stakeholders based on value creation. It is about product results that increase the value of the enterprise and attract and retain customer and employee relationships. It is about presenting robust, clear and creative pathways for getting to the final destinations. 

Getting from here to there
Good succession planning requires that the CEO and the board show ownership and conspicuous support to the plan. The CEO must see succession planning as his or her most fundamental leadership responsibility. In fact, much of the difficulty companies encounter in CEO succession planning is the lack of sensitivity toward the subject by the CEO and, consequently, the board. Succession planning by the CEO needs to be well underway before the board begins asking for it.

Companies must constantly test capability and performance results — including that of a CEO, other senior leaders and decision-makers. This is because a successor could be found both inside and outside the company. As part of the performance test, the company should examine benefits to customers, investors, employees and other key stakeholders. The board also might want to do a targeting exercise, asking: whom outside the company would we go after if we had an emergency?

Those who are identified as fitting the new leadership model should be provided with every possible opportunity to learn and apply diverse experiences that help shape their potential role as a senior leader. This starts at the point of entry. 

In addition, benchmarking can provide an early sense of who is ready for a more senior role. Companies should pick the key positions, determine the core competencies tied to strategy and select comparable companies inside and outside the industry for benchmarking. Setting this as part of the overall succession planning process helps depersonalize it and increases the objectivity of the succession process.

Succession plans should convey that  what is most valued is the success achieved by teamwork. However, in order for this message to be effective, the way the organization works today must reflect this value, or at least demonstrate a genuine effort to move toward this value. Throughout the succession planning process, companies should be careful not to lose sight of the fact that the role of senior leaders is to produce long-term value for shareholders and provide an environment that fosters growth — financial, organizational and personal.

Protecting value through transition
Companies need the right CEO and senior leader in place to maintain customer and investor confidence, managing succession so that value is being created rather than recovered. There is no time to waste — it takes a minimum of one year to recruit, integrate and transfer knowledge to new leaders.

For public companies, not getting succession underway can be very costly. On average, the Canadian companies surveyed saw declining or — at best — flat total shareholder returns during the two years prior to the transition to a new CEO.

The impact on shareholder returns and investor confidence is less extreme when the change of the guard is at the regional level than when the transition occurs at the global level, especially in the case of highly visible, publicly traded Fortune 100 companies.

Conclusion
Given the speed of change and the fast-evolving demands of multi-stakeholders, unless an organization's core business is executive succession planning, recruitment and selection, it is wise to forge relationships with a reputable firm that can objectively search for, evaluate and present candidates who meet industry and role-specific competencies and experiences. This enables a more objective due diligence process, and significantly enhances the value and breadth of the real-time leadership database.

Succession planning requires continuously monitoring and assessing both external and internal influences in terms of competitive advantage, and knowing the kind of leader required to manage the new development. It involves rigorous evaluation of CEO and senior leader performance — including external benchmarking — and ensuring that leadership competencies and experiences criteria are updated to meet the changing business environment, and direct board involvement in the top five to 10 positions.

Succession planning is not peripheral. It is an integral aspect of being future-ready and being prepared for the unexpected. If managed well, with a strategic eye toward what is ahead, it ensures that the business has a future. On the other hand, if managed poorly, succession planning can lead to self-inflicted wounds that deeply impact customers, employees and shareholders, wounds that could have been avoided.

Key to successful planning 1. Most important  •  CEO has to see it as part of job one  2. Board and CEO support  •  CEO owns overall succession planning  •  a governance requirement that CEO delivers to board: set concrete performance objectives and evaluation criteria  •  lead director oversees if CEO is also chairman 3. Objective process  •  direct board involvement in top five to 10 positions  •  rigorous evaluation of performance and competencies, including external benchmarking  •  goals, time lines and accountability   4. Linked flexibly to corporate strategy  •  stated vision, with process tailored to company's uniqueness  •  open to the outside, and forward looking   •  contingency plan in place should something happen to the CEO unexpectedly 5. Developmental-based process  •  avoids perceived fast-trackers becoming risk-averse, perceived non-fast-trackers demotivated  •  involves various postings, stretch goals and enough duration to see the results of decisions  •  individual responsibility for career management, with opportunity for significant ongoing exposure to the board 6. Attend to corporate No. 2s  •  ensure a chunk of visible responsibility has been assigned  •  encourage/facilitate serving on an external board  •  avoid declaring a CEO horse race  •  send clear signals as the time for actual selection nears  •  restate the process, guidelines and timetables that have been set  •  consider retention bonuses in certain situations

Future-readiness How ready are you? • What kind of partnerships do you have in place to support your organization's competitive advantage?  • How objective is your succession planning process? Do your current CEO/senior leaders own the overall succession planning for continued leadership readiness?  • How ready is your company to deal with something happening to the CEO unexpectedly? Is there conspicuous support by the board and CEO in the succession planning process? • To support the customer-centric model of non- hierarchical leadership, how do you cultivate and develop leadership throughout the organization? How else is your organization future-ready? Critical questions to ask about candidates: • Have they earned the respect of others? • Do people naturally want to follow their lead? • How have they kept up with the changing times? • Do they actively mentor their own potential successors? • Do they make decisions and act upon them quickly? • Do they possess unflagging integrity? • What impact have they and their teams had on the business? • How have they made a difference in the larger community? • How are they ready for the fast-approaching, unpredictable future? • What stories of value do people share about the service or product they helped create?

Yasmin Glanville is a business and leadership development and transformation specialist with Creative Transition Resources. She can be reached at yasmin@yglanville.com. Andrew MacDougall is president of Spencer Stuart in Canada. He can be reached at amacdougall@spencerstuart.com