By Akintola Benson-Oke
ROD DRURY, the Chief Executive Officer of Xero recently wrote an article in the Huffington Post recounting how the organisation recently dealt with a development that underlined the importance of succession planning. He started by writing that, “succession planning is critical to the ongoing health and longevity of a company.”
He then proceeded to recount as follows: “This week, our succession plans were put to the test with the unexpected announcement that our Chairman, Chris Liddell, was leaving to take up a role in the White House. With little notice, we were able to quickly manage what could have been a significant hit to our governance structure, all without missing a beat. Successfully managing such an important and visible change demonstrated the importance of continuously looking to the future and scenario planning for unexpected changes, so we are prepared for sudden exits, accidents or to seize opportunities.
“We were officially notified of Chris’s new role on Wednesday, when the announcement was made by the Office of the President-Elect. By Thursday, we had convened a board meeting, talked through our options, made a decision and announced to the stock exchange that Graham Smith, long-serving Xero Board member, would step into the Chairman position”.
He then proceeded to state what made such a swift and satisfactorily effective response possible. He wrote, “For us, we are constantly thinking about succession, even at the board level. In this situation, our plan was for Graham to step into Chris’s role when he eventually retired or should a situation arise prior. At these times, we assess the combination of expertise and experience of our Board of Directors and make appointments to complement the team as a whole.”
During the process leading up to crafting the plan, he noted that “It was interesting to explicitly have the conversation with key people of ‘what happens if you can’t turn up to work tomorrow?’ Often it’s just not talked about but having that conversation was very healthy, and all of our team quickly embraced the concept of identifying successors.” Furthermore, he noted that, “we also insist our people take breaks. It’s a great test for the business if key people can be out of the office, and off email, for a few days or weeks and it continues to run smoothly. Even I do it. I often think, ‘who is the person I’d be most concerned about not being here?’ and ensuring that person takes some leave so we know they have the team to cover themselves.”
Indeed, as the the Association of Professional Staffing Companies, APSCo has noted, Succession planning is vitally important for ensuring the continued success of any organisation, in identifying and developing the talent which will fill your critical roles in the future, or in times of crisis. “Organisations of all sizes are now focusing on succession planning to ensure the leaders of the future are in place. It would be very bad business to not succession plan for the future.” A strong succession plan can identify and put together an agenda to train and mentor the right people to step into leadership positions. Typically, businesses would put together short, medium and long term succession plans. Succession plans should also form part of a structured Business Continuity Plan.
The association also advised that, “increasingly, succession planning should be a consideration not just for high-level senior managerial roles, but also for technical roles requiring a great deal of expertise. If there’s just one person in an organisation-critical position with the breadth of knowledge to keep that business moving – for example, a high level scientist or technical position – then this needs to be looked at too. “Succession plans, in particular for small and medium sized businesses, don’t need to be complicated or even formal, but the interested parties do need to know that they are involved and a plan should be put together to ensure they are in the right position to take the helm should the worst happen.”
In crafting a plan, the association notes that “every internal move need not be upwards – it’s often prudent to move promising people sideways to enable them to learn the breadth of the organisation rather than just their niche part. Not only will this give them the tools they will need to take over, but also provide more senior management with insights on how that person deals with working outside of their traditional role. Concluding, the association noted that, “succession planning . . . should sit right at the heart of the organisation’s objectives, and is particularly prudent in a time where experienced hands are reaching retirement age, taking with them years of knowledge and working relationships, which can and should be handed down before they enjoy their well-earned retirement.”
Notwithstanding the above-enumerated importance of succession planning for organisations, Donald Delves notes that, “yet many companies fail to give the matter sufficient attention, even though the need for in-house candidates with essential skills to lead the organisation may be greater than ever.” He then noted that as leadership turnover at many large organisations averages about once every three years, companies that lack qualified succession candidates are forced to hire from the outside. Thus, the posture of many organisations is to be reactive, not proactive. Boards at reactive organisations find themselves conducting searches for a CEO or C-suite executives – an undertaking that most directors find extremely challenging. Though executives in senior positions at other companies may be proven products, bringing them in does not guarantee successful leadership.
Moreover, hiring from the outside can have negative consequences. Chief among these is spiraling executive compensation. Inadequate succession planning is probably the single most significant factor leading to outsized executive compensation. To attract executives from other companies, recruiting organisations must match or exceed their existing packages and compensate them for risks involved in leaving a known environment for one with unknown challenges. No matter how diligent candidates are in evaluating suitors, there are limits on how much they can know about the condition of a new company before accepting a position.
Because of these risks, outsiders usually need a severance agreement carrying substantial contingent benefits. Citing these dynamics, proxy advisory services stress the importance of succession planning and criticise boards whose lack of preparation forces them to pay premiums for outsiders. Yet, if boards promote the wrong in-house candidates and performance lags, large institutional shareholders criticise them for not bringing in proven products. Organisations that make succession planning a perennial goal are better able to maintain performance while satisfying the demands of stakeholders.
Another inherent downside of poor succession planning is that even the best outside candidates are hampered initially by the fact they are new with the organisation. It can take months for outsiders to adapt to large, complex organisations – a costly interval in today’s high-speed environment.
In this opening address, I have sought to give an overview of the practical approaches that are now regarded as best practices globally in the area of succession planning. While most of the ideas are sourced from business-focused organisations, I am confident that this training will focus on how they can be suitably adapted to benefit the Lagos State Public Service. Without doubt, the value to be derived from them are not quantifiable. But, as always, we must take great pains to carefully domesticate them taking care to avoid importing practices that are not workable under our peculiar circumstances. Beyond this, however, we must be challenged to aspire to the high standards of governance that the citizens now expect from the government.
As the ones responsible for the formulation and execution of government policies, the officers of the Civil Service will extensively benefit from this training. I urge you to wholeheartedly embrace this training and open your minds to the new ideas that will be proposed.
Dr. Akintola, Benson Oke, Honourable Commissioner, Lagos State Ministry of Establishments, Training and Pensions.