Succession Planning 101

If a key exec leaves tomorrow, is your organization prepared ?

PROFIT ONLINE: What exactly is succession planning?

WILLIAM ROTHWELL: There are many terms thrown around in this field and it creates a lot of confusion. To me, succession planning focuses on developing internal talent within the organization. That would be different from talent management, which would focus on developing the in-house talent but also fully integrating that with recruiting and selecting staff from outside the company and also retaining the best talent from inside the company.

But there are other terms that often get confused with both of those. One of them is replacement planning. Replacement planning considers the organizational chart static—and we know it isn't necessarily, but we assume that it is. For those purposes we ask, what do we do if we suddenly lose key people in the organization? What if the CEO is in a plane crash? Or what if the whole senior executive team is in the World Trade Center when it collapses—which is what happened to some companies. 

POL: Do most organizations have succession planning or replacement planning on their radar?

ROTHWELL: No, very often they don't and that's a problem. Research has said that 70 percent of U.S. companies do not have a working succession program of any kind.

POL: What happens when they realize, too late, that they need it? Chaos?

ROTHWELL: Oh yes, there have been many Wall Street Journal articles in recent years about major corporations that really didn't prepare a CEO backup or an obvious CEO successor, and this makes investors nervous when they don't know what's going to happen.

POL: How do organizations devise a succession plan?

ROTHWELL: Many senior leaders, of course, are not experts in this. Very few HR people are. Consequently, the big problem we face at the outset is to get very clear what the objectives or business needs are to be met by the program. Somebody's got to set priorities, and the fewer the better because the fewer the more focused. So if our goal is to make sure that in the event of an emergency we have backups, we focus on replacement planning. If our goal is to be prepared for waves of retirement—which many companies are expecting because of the Baby Boomer retirements—then we would advise a succession program.

Very often there is logic in starting with what can be sold first, and of course the most critical need is replacement planning. But many difficult questions will be asked in the process of installing a replacement plan. How do we know we have the right backups? How do we know managers aren't just cloning themselves? Well, that requires a more objective way of assessing potential for promotability, and that would argue in favor of a more robust succession program. But if we start with baby steps—a replacement plan, which is easily sold—even the most skeptical CEOs and senior leaders can usually see the need for disaster planning. And disaster planning includes the human element as well as the financial and equipment and facility planning.

POL: Should people in line for succession know they’re in line?

ROTHWELL: The most famous question in succession planning is “to tell or not to tell?” Telling means letting people know they are successors—either for individual positions or to go up the ladder to the next level regardless of position. Not to tell means keep a secret, only reveal it when the need arises. There are advantages and disadvantages to both approaches. But 67 percent of U.S. firms do not tell.

I believe long term, the real question is not “to tell or not to tell?” because it makes us prone to the either-or fallacy in logic, when in fact we have many choices. It's a question of who to tell, when to tell and how to tell. Who to tell means when we have critical people that we honestly cannot afford to lose, we need to sit them down and tell them they're valuable to us and that we do foresee some kind of future for them. When to tell would be when we get wind that they might be out looking. The other issue is how to tell, and we have to be quite careful in doing that. I advise clients to have HR and legal work together and come up with some kind of a talking points document that senior managers can easily get their hands on so that when the need arises they know how to talk about it without creating an oral contract.

POL: So who should know? Who should be involved?

ROTHWELL: When you say “succession planning” to a lot of execs, they think that means top-of-the-house planning—the CEO and his or her immediate reports. Very often that's a group we could start with, and they must be in the know for the talent business-wide for key managerial positions. But not all key positions are necessarily at the top of the house. Maybe we've got a VP of R&D three levels down, and that job might be absolutely critical to the business. The level above always must be in the know. They must have hands-on discussion.