By Dale S. Rose, Ph.D., President & Co-Founder
This post is the final installment of a five-part series on best practices in CEO succession. The purpose of the series is to share some of the insights I’ve gained while helping companies manage the messy, sometimes confusing terrain of CEO succession.
Question 5: When Should Planning Begin, and What Time Horizon Should Be Considered?
As I mentioned before, succession planning should be an ongoing process. For firms that don’t have a planning process in place, starting tomorrow is not too soon. A CEO transition is among the most significant, broad-reaching changes for any organization. This sort of change has an effect on every constituent (customers, employees, board members, shareholders, etc.). As such, the potential for error is large and the consequences can be significant. So get out your scout hat and be prepared. Start NOW.
But what time horizon makes sense?
Did GE know that Jack Welch was CEO material when they hired him 21 years before he took over the job? Did they plan that? Of course not. (In fact, Jack himself did – in his 12th year performance evaluation he indicated his goal was to become CEO.) Though the firm didn’t script his ascent from day one, GE did have a succession plan. It involved growing leaders from within so they were sure to have viable internal candidates when the time came. So, while it may not be possible to predict exactly who will become CEO far in advance, solid planning can assure an organization that they will have someone ready when the time comes.
When considering specific time horizons, it is essential to recognize that while organizations change slowly, extraordinary changes in markets, talent, and economics can happen very quickly. For example, few if any Fortune 500 companies had a “social marketing strategy” five years ago. Now they all do. Employer-employee relationships can be equally difficult to predict. Changes in an employee’s family, health or other life circumstances can quickly turn a well-conceived succession plan upside down. So, whereas it is essential to be prepared and to plan ahead, it doesn’t make sense to plan too far out.
No company will find their Jack Welch 21 years before he is ready. Instead, focus on developing leaders and assessing their viability for the next role in the immediate, mid-term, and long-term future.
The Immediate candidates, those who could take the reins tomorrow, or within a year, should have all the requisite success factors, but may still be fine-tuning some of their executive skills.
Potential successors for the Mid-term (1 to 3 years) may have one or two critical development needs. To be on the potential successor list, it is important that they are actively engaged in developing these areas. If these candidates feel they are ready today or are resistant to development, they are likely not well suited for succession (remember that on-the-job learning is intrinsic to the CEO job, so a development orientation is essential).
The Long-Term prospects are on a 3-5 year time horizon. They often have some stand-out strengths that are essential for the role, but it’s clear they require a broader base of experience or development in critical areas. It is often wise to be forgiving when deciding who to include in this last group, because over 5 years leaders can display remarkable, even unexpected spurts of growth.
When assembling the annual list of potential successors, the board should use this 3-tier time horizon of promotability for each of the internal candidates. In larger organizations, there should be at least one internal candidate who could take the job within a year, 2 to 4 internal candidates who could take it in a few years, and 5 to 10 internal candidates who are long term prospects.
In short: 1) Start now, and, 2) Be specific—and realistic—about timing for each candidate.
What’s your experience with this? If you are engaged in succession planning: do you know who your candidates are in each category, or do you need to develop people into them? If you are a candidate, do you know what do you need to do to rise to the next level?