Succession Crisis: Where are tomorrow’s leaders?

Future proofing your company at time when the whole business world seems to run on fast forward isn’t an easy call. The performance bar for leaders keeps getting higher and the skills needed to drive tomorrow’s top companies won’t be the same as those that successfully served yesterday’s managers.
So who and where are tomorrow’s leaders?
Those are questions it seems few companies can answer.
Worldwide succession research shows 75 percent of organisations are not confident they have the internal capability to fill strategic leadership roles over the next five years. The picture in New Zealand is no better, according to succession management survey carried out by Sheffield last year.
It found that 92 percent of local organisations need vastly increased levels of competence from their future leaders – but that most aren’t even sure what the criteria for leadership success are.
Close to half (45 percent) reported lack of candidates with the skills or experience to replace departing executives; 38 percent felt current employees weren’t up to meeting the organisation’s future needs.
A rather worrying picture, says Sheffield partner Roz McCay.
“In my opinion there’s crisis around how succession is being approached in New Zealand.”
Part of the problem is failure to link succession management planning with the company’s strategic intent. When it comes to future planning it’s worth not only knowing where the company is headed, but who is best equipped to take it there.
Relying on outside help is risky option (imported leaders have fairly high failure rate) – better to focus on growing your own store of leadership ready talent. Which is what succession management (SM) planning is all about.
It goes beyond the more traditional replacement planning model, says McCay.
Just slotting the same set of skills into newly vacated roles down functional silos doesn’t meet today’s need for high-level generalists. Nor does it help build organisational ability to respond to an ever-changing business environment.
The depreciation rate on current learning is around 25 percent, says McCay.
“When organisations think about what development effort is required, they tend to think about today’s need rather than tomorrow’s. But there’s lag effect while they invest in the learning. So if you’re developing someone for today’s role, about quarter or more of what they’re learning will be redundant when the time comes to use it. That makes the process bit daunting.”
Getting it right, however, has some proven bene-fits. McCay cites recent findings from three-year Corporate Leadership Council (CLC) study showing companies with stronger leadership benches are four times more likely to outperform their industry peers in revenue growth.
Companies rich in leadership talent are also less prone to revenue stalls because these are largely due to controllable factors – either strategic (45 percent) or organisational (38 percent). Impacting on the latter are such things as senior team capability, talent shortage, or board inaction.
The clear links between good SM planning and business performance plus the need to align leadership development with company strategy are both good reasons for greater board involvement in the process.
Problem is that many boards feel the whole topic of staff development is arms’ length stuff. In the often tricky path trod between governance and management, internal staffing issues are generally seen as an area to be handled by the CEO or the comp-any’s human resources (HR) department – not the board.
At best the involvement extends to making succession management key performance indicator (KPI) for their chief executive, then leaving him or her to get on with it.
“The problem that’s come through loud and clear with that approach,” says McCay, “is that there are just not the metrics coming back from the organisation to say whether or not the CEO is handling it.”
Current thinking is that the board’s responsibility for evaluating and developing company talent cannot stop with simply assessing and developing the CEO.
“They need to do more about understanding where talent lies not just at senior levels but throughout the organisation,” says McCay.
“Because succession management is so inextricably linked with performance then boards are not acting in shareholder interests if they fail to properly oversee that process.”
Sure the CEO is the bridge between board and business – the lynchpin for making things happen. But there are also things the board needs to do to make sure it is happening the way it should, says McCay.
She describes it as jigsaw in which key players (board, CEO, HR) have specific accountabilities. For example, the CEO is the key sponsor who leads the executive, establishes defined succession outcomes, coaches his/her senior team and mentors at least one “high potential” for leadership role.
“There’s lots of evidence showing that if the CEO is not making highly visible effort around succession in the organisation, then the process will fail. So that person has to get really clear brief from the board and use HR or other resources to facilitate the process.”
The board’s role includes monitoring organisational trends (by receiving relevant metrics), receiving yearly talent reviews, monitoring CEO development, and signing off development investment.
In workshops she runs for directors on succession management, McCay outlines various measurements boards could use to check the SM process is working, as well as some of the pitfalls it might encounter.
The process itself starts with identifying business and cultural priorities in terms of organisational vision, values, goals, and direction as well as the profile for leadership success. That provides the baseline for assessing leadership strengths and needs, then developing growth paths for targeted individuals.
It’s vital to link the talent development plan back to performance so that everyone is aware of its purpose. It’s also important to establish criteria for identifying the “high potentials”, says McCay.
“There’s general lack of understanding around leadership potential and unless some criteria are established, it can be pretty hit-or-miss process.”
Important traits that can be overlooked include the ability to learn from feedback, the willingness to have an impact, the ability to balance passion for results with other values (empathy, integrity etc), high levels of conceptual and critical reasoning (the brainpower needed to handle heap of information), and high tolerance of ambiguity – those who don’t have it tend to micro-manage because the big picture has too many fuzzy edges.
Thinking they already know who are the high potentials is common trap for CEOs, says McCay.
Others include:
• failure to follow through;
• slashing development investment (long-term strategy) during business downturn (short-term hitch);
• choosing people who could handle last year’s problems (the world’s moved on);
• creating talent pool whose members mirror the CEO (the mini-me syndrome is an innovative dead end);
• not letting people learn from mistakes (over-control frustrates the most effective learning which is experiential);
• being impatient – development and impact take time.
Success measures the board could use include tracking those identified as “high potentials” – whether they’re moving on or moving up; internal versus external promotions; 360-degree feedback trends over time, plus feedback from key talent pool members, mentors and managers.
“The board needs both qualitative and quantitative feedback to show whether the process is on track. It’s really hinged to the board understanding in the first place what the development priorities are, how they’re defined and what sort of action is taking place. Another thing we suggest is that the board receives yearly talent review from the CEO.”
Initiating interaction with the talent pool, either formally through board presentations or informa