Beyond the Board: Succession Risk Should Be All-Inclusive

As companies strive for success in a rapidly changing global marketplace, ensuring alignment of the talent portfolio to changing business requirements is increasingly critical. Succession risk management engages companies to plan today for the evolving, anticipated future.

CEO succession planning has long been a core responsibility for corporate boards. But today, succession planning should encompass many more roles. Talent is a recognized competitive differentiator and generally a company’s most expensive asset. Avoiding talent “churn,” frenetic fire drills that can accompany unexpected departures, and the potential of lost revenue are undisputed business goals. And as business models shift to match marketplace trends and opportunities, succession plans align a company’s current and bench talent to the business needs of today and tomorrow.

While the details can vary, the best succession plans are built on four pillars, focused on mitigating talent risk:

• Opportunity Risk. Identifying pivotal positions most likely to see change in the near future.
• Readiness. Ensuring that assessment and development practices will provide ready successors.
• Talent Portfolio Alignment. Predicting strengths and gaps around key roles, to keep the talent bench aligned to evolving business priorities.
• Transition Risk. Providing onboarding support and developmental feedback to leaders in new roles.

Importantly, the most effective succession plans are owned by the CEO and senior leaders, accountable to the board, and managed by the CHRO. When a CEO fails to set the tone, succession plans can devolve into a paperwork exercise. Yet it is the CHRO that generally establishes timetables, leads the definition of talent priorities and orchestrates the overall process. Engaging the energy and attention of each management team member is key.

The HR partner elicits insights on changing organizational needs, and ensures quality and consistency throughout the process. Succession plans must be current and viable. If succession plans too frequently are set aside when filling roles, boards and top leaders notice, and the succession process loses credibility.

Other common missteps include failing to include outside candidates in succession discussions. Including outside talent improves slates and helps to define best in class. Joe Bosch, an Allegis Partners human resources advisory board member, and formerly CHRO of DirecTV, Centex and Tenet Healthcare, says, “The best plans that I have seen incorporate external candidates. This widens the playing field pretty dramatically, and adds to the strength and credibility of the talent plan. This is especially important when considering new business ventures. Outside partners can be helpful in identifying external candidates.”

Succession processes that are bureaucratic or driven solely by HR tend to lose business leader engagement. Likewise, succession management that is too shallow or narrow won’t effectively protect the company from changes in the wide range of pivotal roles. The best plans focus on talent that can be groomed for the top two management tiers.

Business success breeds succession-planning needs. Julian Kaufmann, CHRO of G100 Companies, said, “If your organization has experienced success, other organizations will want your talent and a look at your recipe. Just as in sports, if you have a successful season, you will lose people to free agency. So, you will need a more robust bench than you might expect.”

A few strategies can be instrumental to building an effective succession management process. To set the stage, set expectations that functional leaders and line managers will be net exporters of talent. While any manager prefers to keep the best talent, the organization’s top leaders need to be moved between roles and business lines for the benefit of the corporation. Talent plans must be updated regularly and shared with the board several times a year.

Align talent plans with evolving corporate goals. Jeff Shuman, the CHRO of Quest Diagnostics, says of Quest’s process, “We have discussions with business development about the kinds of businesses we are acquiring. We speak with international about areas of expansion. The R&D folks tell us what kind of innovation is underway. And we look to the future. Today some 20 percent of our business is what we call advanced diagnostics, including genomics, precision medicine and personalized medicine, and this area is growing. With more R&D, more innovation, and even a retailing component, this requires different skillsets than we have been grooming over the years. Our succession plans must address this.”

Pressure test succession plans. Once plans are drafted, Bosch recommends, “Convene senior leaders for scenario planning. ‘If we move Maria to this position, what is the risk? Are we committed to supporting her?’ This type of planning promotes honest and robust discussion that validates plans, or prompts rethinking.”

Kaufmann suggests using third-party consultants to offer objectivity and talent marketplace knowledge. And pragmatically, he adds, “As an insider managing succession planning, you have to survive politically. Can you tell someone about their warts? Outsiders can offer an objective, critical review of candidates, which an internal person might ratchet back.”

CHROs should take an active role during a CEO or C-suite transition. Shuman said, “There can be a lack of clarity around accountability and decision rights, so coordinating a structured onboarding and understanding of board, chairperson and other leadership roles can pay dividends.”

Most important is cultivating a process that insists upon outcomes. A succession plan is a business plan, to be evaluated by its execution and results. Anything less is hardly worth the time or effort.

This article originally appeared on Workforce.