Succession planning starts with developing your leaders

Two-thirds of U.S. companies still admit that they have no formal succession plan in place, according to a 2014 survey conducted by the National Association of Corporate Directors.

“Many companies treat the CEO succession as a one-off event triggered by the abrupt departure of the old CEO rather than a structured process,” writes Åsa Björnberg and Claudio Feser in McKinsey Quarterly. “The succession is therefore often reactive, divorced from the wider system of leadership development and talent management.”

As a result, potentially good internal candidates may be overlooked or not have sufficient time or encouragement to work on development areas.

The authors advise that succession planning should be a multiyear structured process tied to leadership development.

“A leadership-succession process should be a tailored combination of on-the-job stretch assignments along with coaching, mentoring and other regular leadership-development initiatives,” they write. “Companies that take this approach draw up a development plan for each candidate and feed it into the annual talent-management review, providing opportunities for supportive and constructive feedback.”

Three criteria can help companies evaluate potential internal and external candidates:

• know-how, such as technical knowledge and industry experience.
• leadership skills, such as the ability to execute strategies, manage change or inspire others.
• personal attributes, such as personality traits and values.

These criteria should be tailored to the strategic, industry and organizational requirements of the business over the next several years.

“Companies must work hard to filter out bias and depersonalize the process by institutionalizing it,” the authors continue. “A task force (comprising, perhaps, the CEO, the head of HR and selected board members) should regularly review the criteria for selecting internal candidates, assess or reassess short-listed ones, provide feedback to them, and develop and implement a plan for their development needs. The task force should identify the right evaluation criteria in advance rather than fit them to the pool of available candidates and should ensure that its members rate candidates anonymously and independently.”

Read more from McKinsey Quarterly.