Module 4: A Guide to Succession Planning, What Every Director Needs to Know May 17-18, 2015
Purpose and agenda The purpose of the training is to provide directors with practical information on the need and procedures of succession planning for key positions Outline: 1. Concept and need for succession planning 2. How is key positions succession planning organized 3. Role of the Board in succession planning 4. A framework for successin planning 5. Defining parties that should have access in the succession planning 6. Succession planning pitfalls 90
Takeaways By the end of this workshop, you should be able to: Understand the importance of a proper succession planning policy Develop the succession planning policy for your company Make use of best practices as they can be found at other companies 91
Concept and need for succession planning 92
The definition of succession planning Succession planning... Is the process of continuous search for future leaders and the systematic development of their professional, managerial and leadership qualities. 93
Issues to consider for directors. Identifying, developing and utilizing talented people lies at the heart of governance. Talent and succession planning need to top the boardroom agenda and be acted upon. Towards Dynamic Governance 2014: Heidrich & Struggles 94
Factors emphasizing the need for succession planning General trend: (Growing) deficit of qualified managers; Higher qualification requirements for top management; Specific trends: High personnel turnover; High business growth rates. 95
Advantages of succession planning Gives shareholders confidence in business continuity in case of loss of any of the key managers; Company-wide career planning tool; Motivation for mid-level management; Ensures the organization can survive and thrive. 96
How is key positions succession planning organized 97
Your First Priority: Emergency succession planning Step 1: Emergency succession plan for the position of the Managing Director and his/her deputies Step 2: Emergency succession plan for all managing and senior positions in the organization 98
Succession system development steps (Steps 1-2) 1. Establish succession chain in case of planned or unexpected absence of the Managing Director et al 2. Review of succession chain by the Board of Directors, participation by the first deputy in the Board meetings 3.Develop and document the key management procedures for ensuring access to information in case of succession 4.Ensure access to information and training of at least one deputy for the Managing Director position 99
Next Steps: Long term succession planning Step 3: Assessment of qualification and skills necessary for a position and personnel development program. Step 4: Search for potential candidates for the key positions outside the organization (not more than 30-50%) 100
Succession system development steps (Steps 3-4) 1. Lists of required skills and qualifications for each key position; 2. Search for people with the required potential for the given positions; 3. Comparison of existing skills and experience of the candidates with the required qualifications and identifying gaps in qualifications; 4. Development of training programs for each candidate. 5. Criteria for future evaluation. 101
Personnel development for purposes of succession planning Specialized seminars and conferences; Continuous professional education; Internships; Horizontal transfers; Participation in specialized projects; Training by senior managers. 102
Example of a Succession Planning Chart POSITIONS NOW IN THE JOB REPLACEMENT READY NOW POTENTIAL REPLACEMENTS JOBS/TITLE NAMES Performance Potential Years of Seniority Years on present job NAMES General Director Mr. X 3 3 N/A 2 Vacant - Hire externally 5 5 N/A 2 Vacant - Hire externally 4 4 N/A 4 months Deputy General Director Vacant - Hire externally Ms. D 5 5 N/A 1 Mr. M 5 5 N/A 4 months Deputy General Director Mr. Y 3 4 N/A 3 months Mr. E 4 4 N/A 2 Ms. N N/A Chief Financial Officer Ms. A 4 3 N/A 1 Ms. F 3 3 N/A 2 Vacant - Hire externally N/A Head of Marketing Ms. B 5 5 N/A 2 Vacant - Hire externally Mr. O 4 4 N/A 4 months Chief Information Officer Mr. Z 4 4 N/A 4 months Vacant - Hire externally Ms. P 5 5 N/A 4 months Performance Potential Years of Seniority Years on present job NAMES Performance Potential Years of Seniority Years on present job 103
Role of the Board in succession planning 104
The Role Of The Board Nominations and Remuneration Committee develops the high level succession policy The Board reviews and approves (in coordination with the CEO) succession policy CEO develops succession plan The Board reviews candidates for the Managing Director s position. CEO for other key positions (under Board oversight) 105
The Role Of The Board under Code of Corporate Governance The Board to develop significant policies of the listed company including human resource management and preparation of a succession plan 106
Board of Director s checklist 1/2 Is there a separation of responsibilities between the Board and the Managing Director in succession planning? Who is responsible for this work at the Board of Directors? Is assessment of the quality of succession planning part of the Managing Director s performance assessment? Does your succession plan include measures on retaining talented managers? Succession plan Does the Managing Director s contract contain provisions for his membership on the Board of Directors? 107
Board of Director s checklist 2/2 Do you have emergency succession plan for the Managing Director and are the key deputies aware of such plan? Is discussion of succession planning part of the Board of Directors work plan? How often do members of the Board meet the potential candidates for the Managing Director s position? succession plan Does your Board evaluate succession plans for several levels of management (heads of divisions, managing director s deputies)? 108
A Framework for Succession Planning 109
Succession General framework-i To actively manage and plan succession of key managers, the framework includes: Definition of qualities, characteristics and competencies of future managers based on strategic needs of business development, corporate strategy and values. Identification of people with high leadership potential, comprehensive assessment of their potential. 110
Succession Succession General framework -II Development of individual development programs for these employees; Comprehensive assessment of executives performance in different situations; Selection and appointment for senior positions based on performance, experience and proven potential of the employees. 111
Example of a Succession Plan Principles -I Key Positions that are critical to the ongoing success of the organization will be identified and succession plans developed for all The Board is accountable for the succession planning policy, which will be reviewed annually. The CEO is responsible for drafting and implementing the succession plan, [A Succession Planning Committee exists to coordinate and integrate efforts] Succession plans will be developed for both near term (immediate) and longer term The diversity (industry sector, experience, discipline) of the organization will be reflected in its leadership Profiles of and example roadmaps on how to achieve key positions will be developed by mgmt. and approved by the Board Profiles and roadmaps will be communicated to all members to encourage volunteers to participate in the desired experiences to be considered for key positions. Confidentiality of candidate information will be protected 112
Example of a Succession Plan Process II Key Position - A leadership or coordination role important to accomplish the organization's objectives Profile - Documentation for each key position that outlines the commitment, role, responsibilities/duties, preferred prior experiences and preferred skills / proficiencies. Roadmap - Example paths to reach specific leadership positions. These roadmaps suggest the kinds of skills and knowledge that need to be developed to be considered for higher levels of leadership responsibility. 113
Example of a Succession Policy -III 114
Example of a Succession Policy -IV 115
Defining parties that shall have access to information on succession planning 116
Succession system disclosure Who should have access to the mid-term and long-term succession plan? Shareholders (?); Board of Directors; Persons currently holding senior positions; Candidates for respective positions; All employees of the organization (?) 117
Succession system disclosure Emergency plan for key positions succession must be made available to most of these groups (excluding, general public, counterparties, shareholders) Information about mid- and long-term succession plans should be restricted to the Board of Directors, current executives, and, possibly, most likely candidates, however, without any guarantees on the part of the board of directors 118
15 min. Break-out Session: Succession planning for a Chief Executive Officer 119
Case Study- Boards can help the succession process along: Framing the succession process as a fiduciary responsibility helps make the board s intervention less personal Engage the founder in imagining the organization without him Institutionalize the founder s legacy by having him or her articulate core values and incorporating them into the selection criteria for the new CEO Support the founder s emotional process of letting go by helping him consider other contributions he could make to society, community and family Strengthen the board s effectiveness as a team so it becomes capable of having constructive and candid conversation, both with and without the founder in the room Build consensus among influential board members and help them overcome their reticence to address thorny issues with founder Stay close to the new CEO who succeeds the founder. The successor will have the difficult task of balancing the old with the new 120
Key factors and possible pitfalls of succession planning 121
Succession plan support drivers Top leadership involvement Design creativity Defined success criteria Establishment of leadership competencies Communication to stakeholders 122
Possible pitfalls Company has not formulated its strategy, and what types of leaders it will require to implement this strategy Lack of a formal written plan for each key person or position A rigid, inflexible plan NOT tailored to the needs and abilities of the personnel involved Too long a wait for real movement/ promotion, potentially resulting in the best people leaving due to apparent inertia in the system 123
Possible pitfalls Too superficial approach, with the corresponding lack of real understanding of the procedures, processes and requirements of each area the individual is exposed to during the process Selection of unqualified or unmotivated staff for inclusion in the succession plan Nepotism can be either negative or positive, depending on the capabilities of the individuals involved, it is rarely neutral 124
Possible pitfalls Failure to differentiate between high potential and high performing employees Lower morale for solid employees who aren t selected as high potential candidates Most organizations do not inform high potential candidates of their status, at least not directly Vested interests: Some managers may block (rather than coach) their successors 125
Issues to guard against pitfalls of succession planning What are the critical positions in the organization for which we need leadership continuity? What are the key competencies required for effectiveness in these positions? Who will create the position profiles (competencybased job descriptions) for targeted positions? What are directed assignments that will build the competencies of high potential candidates? Who will develop and administered the performance feedback process for current and future leaders? 126
Succession planning is not Succession Planning is not Workforce Planning Replacement Planning Pre-Selection 127
Succession planning is.. Not just Nominating a Deputy Predicting the future A pool of key positions Creating plans as a one time event It is Building a longer-term context for short-term decision making Focusing on positions where you need to be proactive or need time to react Creating plans in response to changing strategies Focusing on planning and looking ahead to what will be Creating reports that describe what was 128
Conclusion 129
CONCLUSION: Succession planning is one of the most important factors for ensuring long-term sustainability of business Efficient succession planning system includes not only emergency top managers succession plan, but also a system for personnel assessment and development for ensuring key positions succession Role of the Board is the development of the general key positions succession policy, as well as evaluation of candidates for the Managing Director s position 130
CONCLUSION: One Size Does Not Fit All 131
Thank you for your attention! Questions? 132