U.S. organisations ignore succession planning

2006

Despite acknowledging the importance CEO succession, new research amongst U.S. organisations has found that a remarkable proportion have failed to put succession plans in place, an oversight that is symptomatic of a more widespread failures in talent management and leadership development.

Around half the boards of public, private and nonprofit corporations consider their efforts around CEO succession to be less-than effective and a similar proportion admit they have no succession plan in place.

The findings emerged from a series of surveys published by The National Association of Corporate Director's (NACD) research arm, The Center for Board Leadership, in collaboration with Mercer Delta Consulting.

What's more, the surveys reveal, a quarter of organisations acknowledge that their boards fall into "below acceptable" levels of CEO succession planning, despite directors identifying succession as among the leading concerns facing their companies.

For directors on public boards, CEO succession is the second-most critical board concern, up from last year's third, while for directors on private boards, it ranks as the third-most important issue, up from fifth last year.

Strategic planning and corporate performance were other issues high on the agenda for boards in 2006.

It is also clear that companies are increasingly feeling pressure to more effectively identify and develop executive talent, particularly when it comes to the senior leader.

These findings are compounded by the fact that fewer than 15 per cent of directors view their boards as "highly effective" in executive talent management and leadership development.

In fact, about half of all boards surveyed consider themselves less-than effective in the area of executive talent management and leadership development.

"This may be an opportunity for boards to make an investment in this area, which is necessary to develop and groom CEO-designate candidates internally," Roger W. Raber, NACD president and CEO, said.

According a study of best practice on CEO succession published by NACD last spring, the majority of boards voice a strong preference for developing internal candidates versus seeking a CEO replacement outside of the company.

The report recommended CEO transitions should unfold over a minimum of a three- to five-year period, ensuring that directors have confidence they have the right leader for the company's future and avoiding putting in talent that hasn't had the broad development required to assume the CEO position.

"The risk highlighted in the 2006 Governance Survey is a clear gap between succession planning and leadership depth and the board's ability to address these issues," said Elise Walton, partner and head of Mercer Delta's corporate governance practice.

"For any corporation - public, private or nonprofit - best practices must be championed at the top, and that means even greater involvement at the board level.

The board always should have a plan from Day one, so a sudden vacancy doesn't create a crisis.," he added.

Yet if that sudden vacancy should arise, the research found that it is unlikely to be filled by somebody from an ethnic minority.

More than half of the directors of public and private companies surveyed said that their boards lacked ethnic diversity, yet more than a third do not think sex and ethnic diversity are important criteria for recruitment.

Only in the non-profit sector did more than half of board members deem sex and ethnic diversity as important criteria for board staffing.

"Nearly every company will require a diverse perspective in order to serve customers, execute a winning strategy and bring value to shareholders in this global economy," Roger Raber said.

"Therefore, diversity of gender and race on the board is as important as experiences and expertise in the board composition mix. Unfortunately, the diversity needed to anticipate customers' varying needs is surprisingly low on the priority list for public and private boardrooms."

Older Comments

Succession planning is not something private company owners do. 80% have no exit strategy which would include filling the CEO seat once the firm is sold. This lack of planning costs the owners millions of dollars. You can find specific supporting data at: www.hamiltonwright.com Baby Boomers own 12 Million companies and will have to create a liquidity event to retire or pass the business on. Thanks for the confirmation on the lack of planning. Hopefully some private company owners will see your piece. Anthony Lorizio

Anthony Lorizio Boston, MA, USA