Succession planning: Generation Next coming on top, what organisations must do now

Most of the baby boomers will retire by 2020, leaving it to Generation Next to dominate half of the workforce; by 2025 the percentage of the given monopoly will increase further. A study of the world’s 2,500 largest public companies shows that organisations that scramble to find replacements for departing chief executive officer (CEO) forgo an average of $1.8 billion in shareholder value. And a separate study reveals that the longer it takes a company to name the new CEO during a succession crisis, the worse it subsequently performs relative to its peers.

“Gone are the days of slowly building a ‘pipeline’ of prospects over the years and human resource (HR) working behind the scenes slowly identifying leaders, as an outcome of completion of fixed time period stint of roles. 

Businesses today have realised that identifying a successor is only the first step in what may turn out to be a long process of identification which includes development, training and managing change. There’s nothing called ‘quick-fix’ succession planning,” says Nishith Upadhyaya, head - advisory services, SHRM India.

In book It’s Not the How or the What but the Who, Claudio Fernandez-Araoz of the search firm Egon Zehnder lays out six succession-planning guidelines for busy directors: First, start early, ideally the moment a new CEO takes charge. 

Second, create strict performance metrics and a process for evaluating the CEO against them. 

Third, identify and develop potential successors within the firm and then benchmark them against external talent. 
Fourth, look externally to widen the pool of candidates, through executive search firms that don’t use contingency arrangements or charge percentage fees (which Fernandez-Araoz believes create perverse incentives). 

Fifth, require the board to conduct periodic emergency succession drills. 

And finally, put in place an extensive transition process to help with onboarding, which is especially important given that 80% of CEO appointees have never served in a chief executive role before.

Sukhdeep Aurora, chief people officer - ANAROCK Property Consultants, says, “The old school of thought wherein people were automatically ‘boosted upstairs’ just because they were next in the line of seniority is rapidly becoming an obsolete concept.”

Apple demonstrated a prime example of succession planning when Tim Cook seamlessly took over as CEO after Jobs stepped down. Similarly, IBM’s first female CEO Virginia Rometty made the transition effortlessly when Samuel J Palmisano stepped down in 2011, all because she had been with the company for over 30 years and had the complete knowledge of the company’s business operations and culture.

“Large, ethics-driven firms will recognise potential and performance over mere seniority, and have adequate grooming programs for future leadership. At their very basis, all good businesses are families - but they are families wherein the ‘bloodline’ must be one based on performance and promise. Continuity is a very important factor for a business. For a company to achieve multi-generational growth, succession planning must indeed be honed into a fine art, governed by the right philosophies and beliefs,” Aurora says.

Millennials comprise of 38% of the workforce, according to Gallup, and they’re poised to take over leadership roles as the baby boomers start to retire. The report points out that if organisations fail to meet millennials’ needs, they’re more likely to “function as free agents”, always looking for fresh opportunities. The report also adds that earlier, employees used to care about salary, satisfaction, having a good boss, annual reviews, their weaknesses and their job but today, employees are focused more on having a purpose, developing their skills and working with mentors.

By: Payal Sondhi 
(The writer is assistant general manager, SILA)

Source: DNA Money