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Succession Planning:

Passing the Torch Without Getting Burned

On Friday, we witnessed a unique testament to the enduring nature of American democracy: the peaceful transition of power from one president to another. What many may not realize is that the transition has been in process since the early summer, when the two major party candidates were nominated. This fall we watched President-elect Trump prepare to take the reins of bureaucracy and we were reminded of the importance of succession planning. As with any successful project, leadership transition requires careful planning and collaboration, both before and after the transfer of power.

Change is Inevitable; Be Prepared!

It may be a source of great consternation to most companies that the United States government is more prepared for a leadership transition than they are. Research shows that even though 10 to 15 percent of companies complete a change in leadership each year, only slightly more than half of boards have an internal successor in mind, while another roughly 40 percent have no viable replacements whatsoever. This is a costly mistake, as organizations that have a haphazard transition process lose an average of $1.8 billion in shareholder value.

How much notice should the CEO give the board to begin the hiring process? In a 2010 blog, Managing Director Jane Howze explains that timing, announcing and planning for the future are crucial to successful transitions. If the transition period is too short, there is "not enough time to even learn what questions to ask, much less absorb the knowledge" necessary for a smooth change.

Conversely, if the transition drags on for an extended period of time "executives must continue to find ways to remain relevant to the organization and validate themselves." Further, where employees look for direction can be unclear when two executives are in the mix. Ms. Howze finds that one to two months is an adequate amount of time for a successful transition.

Success is Dependent on the Incumbent

Setting up your successor for success is just as important as choosing the right person to take over the helm of the company. Dan Ciampa, an expert on CEO succession planning, explains that an incumbent executive must use their power to ensure that all functions of the company coalesce to acquaint the new executive with the culture and processes of the organization.

Additionally, incumbents should help their successor win the support of the personnel who will soon be reporting to them. (This can especially be difficult if an internal candidate was passed over for the job.) Ciampa explains "the outgoing leader can reduce resistance by creating an atmosphere where the organization doesn't hand over just the trappings of leadership to its new head, but genuine confidence as well."

The board also needs to realize that their involvement with the transition does not end with the final vote to extend an offer to a candidate, especially considering that "one-third to one-half of new executives fail in their first 18 months." It is the board's job to help guide the relationship of the incumbent and the successor, to make sure that the new executive is adequately stepping up to the plate to make the big decisions, and that the predecessor is serving in an advisory role, rather than as a decision maker. An incumbent should gradually hand over power to the successor by telling managers to seek the counsel of the new executive, and should not be the key decision maker up until the final hour of their last day.

Internal Hires: From Peer to Boss

It seems like the transition for an internal candidate would be easier in comparison to an external candidate's transition. But in many cases, the internal candidate hasn't served in a chief executive role before, so they should beware there are several traps that a newly-promoted CEO might fall into. For example, someone who has risen through the ranks of a company and gained the confidence of the board may think that they already know all the nuances of running the company. Or they may assume that their new direct reports will be automatically receptive to the changes they want to make. Instead, internal hires should start thinking like an external new hire. If the newly-promoted CEO listens and learns as someone new to the company would, they may avoid the same mistakes of their predecessors and more accurately identify the company's strengths and weaknesses.

Additionally, it is important to recognize that sitting in the chief executive's chair is unlike any other responsibility the new incumbent has held in the company. Suddenly, they are leading a team made up of their former peers. Their attention will be demanded by more people, with less time available to contemplate big decisions. A new chief executive officer should seek the counsel of the board and appropriate company advisers (e.g. outside counsel) and use their knowledge of institutional history to help guide their decision making.

New Company, New Team

Executives that are hired externally need to learn not only the company culture and history, but they also have to work with a team they did not build themselves, and who are looking to the new executive with caution and uncertainty. Mark Thompson, CEO of The New York Times Company, shared insights about his successful transition from the BBC to the New York Times. For him, the transition process began before he was even offered the position. He spent time speaking with former employees of the company to gain an insider's perspective of what it was like to work for The Times, and what potential challenges he would encounter. During the on-boarding process, Thompson explained that being completely engaged during every presentation and conversation is crucial to showing your new employees that you have a vested interest in seeing them succeed in their jobs. Finally, Thompson took the time meet the employees he would not interact with on a daily basis, by making trips to satellite offices to get a sense of what is like to work outside of the company's main offices.

Professor of Leadership and Organizational Change, Dr. Michael D. Watkins, addresses some of the vital first steps new externally hired executives should take in their new leadership role. It is important for the chief executive to "maintain stability while moving ahead." He or she should assess the current team in place and determine if the talent matches the responsibility of the position. The new CEO must quickly be aware of the challenges that are facing the company, and determine what skills and leadership qualities are required of the team in order to successfully position the company for future growth.

The New Boss

We addressed the topic of leadership transitions again in 2014, when John Mann, Managing Director of Alex & Red, wrote "New CEO? How to Make It Work." Mann believes that embracing, rather than fighting change, is the best path forward and suggests that employees' willingness to adapt, observe, develop rapport, and maintain value could be keys to a smooth transition process.

Transitions are a challenging time for everyone involved. Leadership changes are inevitable. The degree of stress is inversely proportional to the amount of planning an organization undertakes for its leadership transitions.

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Kyle Robinson

Kyle J. Robinson

Director of Research