For many organizations, CEO and executive succession planning got knocked off its heels in 2020. Along with all the other crises and disruptions of the pandemic, business succession plans got interrupted, and delayed. As the pandemic hopefully ends in 2021, and the economy continues to recover, company boards and management teams need to seize this moment to reassess their succession plans and take a fresh look at their pipelines of future executive talent. Consider these recent statistics from the Harvard Business Review: 53 percent of companies do not have a contingency plan for CEO succession, 41 percent do not regularly discuss CEO succession, and 54 percent do not have an effective plan process for CEO succession. Given that the median age of executives within the S&P is 58, this could mean trouble soon.
As a result, there will be a significant reset of succession planning in 2021 which will include adopting new success criteria, adapting to a shortage of ready talent, a greater emphasis on Diversity, Equity, and Inclusion practices, a need to rethink timing, more focus on resiliency, agility, decisiveness, and the ability to lead a remote workforce. In addition, boards will play a more hands-on role than ever before as succession planning and key-leader backfill becomes more important to a company’s risk assessment.
Here’s how succession planning will change in 2021:
Reassessing Executive Talent
This extraordinary period of the pandemic and America’s social justice movement has forced us to question everything we know about senior executive talent. Crisis management, inclusive leadership, and the ability to align a remote management team are even more essential now. Many CEOs and potential successors have been riding out the crisis at their current organizations, not wanting to abandon ship during such a tumultuous time, but there is likely to be an exodus when the pandemic ends. Baby Boomers will continue to retire, but at a more rapid pace over the next 12-18 months.
In addition, many up and coming leaders have shown varying degrees of resilience and leadership prowess during the pandemic. Some have responded well under pressure, and their stock has risen, while others have not. In addition to a surge in remote working, we saw an acceleration of digitization and technology solutions, so executives who previously worked in a tangible, in-person environment, are now having to pivot. New skill sets are required for executives leading a remote workforce, with a focus on emotional intelligence, empathy, and agility.
What does this mean for succession planning? Boards need to accelerate their assessments and readiness of C-suite talent. Companies need to adopt a hyper-condensed timeframe for evaluating high potential candidates.
Changing the Process
The old rules of succession planning no longer apply to the needs of this current climate of extreme uncertainty. Succession plans that might have seemed predictable in January 2020 are no longer relevant today. For many organizations, succession planning has always been a static process, a kind of perfunctory, once-a-year exercise where the board reviews the plan, and then might not talk about it again until the next annual meeting.
In 2021, succession planning needs to be a more active, fluid, ongoing conversation with greater depth and agility. Firms need to think about succession planning in a way that looks more like business continuity planning, because it is just as crucial to the organization. Our top clients will discuss succession and talent planning quarterly with their boards, and any new business initiatives must address talent implications in order to be approved for investment.
Boards need to look deeper into the organization and talent planning conversations need to be more proactive and frequent – quarterly, not just annually. Boards need to have a realistic view about retention risks and leadership readiness. An organization’s ready-now talent might jump ship for another opportunity, and long-planned successors, that had been groomed for the C-suite, might not actually be ready to step into the top jobs. The continued focus on diversity and inclusion will also create more movement internally and externally of top diverse talent.
The criteria for evaluating CEO successor candidates needs to be broader and encompass new capabilities that are now required for senior executives in the new normal post-pandemic. Boards need to look beyond the C-suite to include key operational roles, and groom future executives with more cross functional and cross-business assignments. They should try to develop leadership talent for broader capabilities, not just align with narrow role profiles. Succession profiles must also change. Gartner’s 2020 research reported that 79 percent of companies have development profiles for succession and 47 percent of companies had formal assessments for all succession talent. We will see these stats increase in 2021.
Boards are Stepping Up
Succession planning is a strategic process that is intimately related to corporate performance, and it is the board’s number one fiduciary responsibility, especially for the CEO. In 2021, boards need to step up and take increased ownership of the succession planning process. They should not be overly reliant on the company’s current management team for insights. They will need to take a deeper dive into talent throughout the business, not just CEO successors.
CEO succession planning should begin on the day a new CEO starts on the job. The competencies of the future CEO need to be tied to impact on company culture; to either preserve it or to enhance it with the new succession structure.
Align succession profiles that are driven by business strategy and define short and long-term business priorities. Carry out more acute, objective assessments of talent, with a focus on making stronger assessments of risk such as readiness, retention, and focus for development.
Boards also need to pay closer attention to external talent pools and should have an external succession pipeline that is nearly as robust as the internal pipeline.
Recommendations for the New Normal of Succession Planning
Boards and management teams are operating in an environment of historic crisis and uncertainty, and this makes it even more important to revamp succession planning for these new realities.
A few recommendations:
- Plan three-to-five years out. Think near-term, not long-term. Trying to plan beyond that five year window is not a good use of time and energy.
- Define and align on success profiles for key roles (not just the CEO), and always consider the current and future context of the business.
- Ensure objective and fact-based assessments for all succession candidates to identify readiness, context-specific characteristics, and development priorities.
- Have a balanced slate of candidates from inside and outside the company.
- Have talent planning and succession-related conversations more often. The identification of succession can be annual, but the development of the plan should be discussed and reviewed on a quarterly basis. Ensure that management owns this.
Succession planning should not be left to a single PowerPoint presentation for the board at the annual meeting. It needs to be an ongoing conversation and a work in progress that adapts to the ever-changing business environment and the strategic challenges facing the organization. Many organizations were forced to put a freeze on their succession planning during the crisis of 2020. Throughout 2021, more organizations will need to be proactive and agile at succession planning, to identify and welcome the right leaders to the C-suite.
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