Category Archives: succession planning

Sizing Up Succession Management

successionIt’s a fact of corporate life, and it happens all the time: executives leave companies, just like employees at every other level do.

In fact, we’ve seen two CEOs depart from large, high-profile organizations in just the past nine days.

On Jan. 28, the Oak Brook, Ill.-based McDonald’s Corp. announced that CEO Don Thompson would retire at the end of February. That news came just two days after Mattel Inc.’s Bryan Stockton resigned from that company’s top post.

Both of those organizations looked within their own walls to replace erstwhile chief executives. Chief Brand Officer Steve Easterbrook will take the reins at McDonald’s, while  longtime Mattel board member Christopher Sinclair was named the El Segundo, Calif.-based toymaker’s chairman and interim CEO.

Korn Ferry’s new Succession Matters report suggests that most executives favor such an approach to executive succession; one that relies more on “building” (developing from within) than “buying” (hiring from the outside) when sourcing leadership talent.

More specifically, the poll of 1,009 C-level respondents found most executives reckoning the right mix of “build” versus “buy” should be 2:1. Nevertheless, close to half of the survey’s respondents—from companies ranging in size from 500 to more than 50,000 employees—said their organizations depended more on outside hires to fill leadership positions.

And, looking more broadly at succession management, it seems many executives have issues with their companies’ efforts that go beyond where they’re looking for C-level talent.

Overall, just 36 percent of executives said they were “satisfied” or “very satisfied” with their company’s succession-management programs. Less than one-third (23 percent) reported having a solid pipeline of “ready now” candidates for leadership roles.

Part of the problem is that many succession-management programs “don’t go deep enough into an organization” in search of executive-caliber talent, says Jim Peters, lead for global succession management at Korn Ferry.

For example, the study finds 78 percent of executives saying their organization’s succession-management programs only include the title of “vice president” and above.

“I often say to CEOs: ‘There are several potential CEOs within your organization; you and many others at different levels in the leadership pipeline, with one being an individual contributor in Mumbai,’” says Peters. “[I ask these CEOs] ‘Do you know who she is? And if you know who she is, what would you do to ensure that she would have the skills and capabilities to lead the enterprise 15 or 20 years from now?’”

Building a “world-class” succession-management program requires integrating talent processes that make the whole “much greater than the sum of its parts,” adds RJ Heckman, president of Korn Ferry’s leadership and talent consulting business.

“Companies that do not have a ready supply of leaders leave talent processes separate and unintegrated,” says Heckman. “Recruiting is not related to performance, is not related to learning, is not related to succession … and lo and behold, you don’t have a ready slate of candidates when the proverbial emergency hits and you need candidates [for] senior positions.”

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Based on the results of a new study, you CHROs out there might want to start measuring the drapes in the CEO’s corner suite. The CHRO CEOUniversity of Michigan’s Dave Ulrich (whom we often feature as a source in our news and features) and Ellie Filler, a senior client partner in the Swiss office of executive-recruiter Korn Ferry, examined several sets of data pertaining to the C-suite and concluded that the executive whose traits were most similar to those of the CEO was the CHRO.

“This finding is very counter-intuitive — nobody would have predicted it,” Ulrich told the Harvard Business Review.

Based on their findings, Ulrich and Filler recommend that companies consider the CHRO when looking to fill the CEO position.

Of course, it shouldn’t be news to HRE readers that today’s CHROs are a far cry from the HR honchos of yore. Many report directly to the CEO, as Ulrich and Filler note. They often serve as the CEO’s key adviser and make frequent presentations to the board.

The data they examined to arrive at their conclusion included the salaries for CEO, COO, CFO, CMO and CIO. They wanted to determine the importance of the CHRO relative to other C-suite positions. They found that CHROs are the third-highest paid executives, second only to the CEO and COO, with an average base pay of $574,000. That’s 33-percent more than CMOs, the lowest-paid executives on the list.

Ulrich and Filler also studied proprietary assessments administered by Korn Ferry to C-suite candidates to uncover leadership traits. They examined scores on 14 aspects of leadership, grouped into three categories: leadership style, thinking style and emotional competency. They then assessed the prevalence of these traits among the different types of executives and compared the results.

Of course, not all CHROs would be good candidates for CEO, say Ulrich and Filler. Those who’ve spent their entire careers in HR, for example, probably won’t make it to the top. Instead, CHROs with well-rounded business experience, such as running a business division, have a much better chance of assuming the CEO mantle. They cite CEOs such as GM’s Mary Barra and Xerox’s Anne Mulcahy, who served from 2001 to 2009, as leaders who served stints overseeing HR.

In their white paper, Ulrich and Filler include testimony from CEOs who agree the CHRO could be a contender for their role.

“It’s almost impossible to achieve sustainable success without an outstanding CHRO,” Thomas Ebeling, former CEO of Novartis, told them. “[The CEO] should be a key sparring partner for a CEO on topics like talent development, team composition [and] managing culture.”

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Leadership-Development Spend Up Again

Figure I might finish off the week with some positive news received a couple of days ago from Bersin by Deloitte.

New research from the Oakland-based consulting organization shows that U.S. organizations boosted leadership spending 14 percent on average for the second consecutive year. That translates to an estimated $15.5 billion in 2013. (Smaller organizations enjoyed the largest increase.)

466169293As I write this, we’re putting the finishing touches on our annual “What’s Keeping HR Up at Night” survey that we’ll be sending out soon. And if the findings of 2014 survey are similar to last year’s or the year before that, leadership development will end up somewhere near the top of our list of issues HR leaders are most worried about (in 2013, it was the second-most-cited issue).

Well, if the Bersin study (Leadership Development Factbook 2014: Benchmarks and Trends in U.S. Leadership Development) is any indication, HR leaders are busy translating some of that worry into actual initiatives.

In addition to a 14 percent rise in spend, the research found employers are beefing up their staffs in the area of leadership development, with a 12 percent overall increase at U.S. organizations. It also found emerging leaders are getting a healthy dose of the funding, with 17 percent of leadership-development budgets going to high-potential professionals who have not yet reached an official managerial role.

On a more sober note, the study also revealed first-level managers were receiving the lowest per-person funding in leadership development. For example, within large organizations, these leaders each receive, on average, $2,600, or 34 percent less than emerging leaders and half the amount of mid-level leaders.

Considering the impact this level can have on engagement and performance, it would be nice to see this group get a bigger piece of the T&D pie.

Companies also continue to fall short when it comes to “priming the pump” as far as their leadership pipelines are concerned.

The research indicates that successors have been identified for just 10 percent of their first-level leaders and 19 percent of their mid-level leaders. The pipeline at higher levels also looks weak within these organizations, with successors identified for just 24 percent of senior-level positions and 36 percent of executive positions.

Further proof that companies still have a lot more work to do on this front.

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Paying CEOs to Find Their Replacements

successorWant to pave the way for the organization’s next leader and light a fire under your current chief executive in the process? Rewarding your CEO for helping to find and groom a successor may be one way to go.

A recent Wall Street Journal article calls this practice the “hottest corporate fad,” citing firms including Avnet Inc., Intel Corp. and Marriott International Inc. as examples of large companies offering incentives to chief executives for their efforts in ensuring a smooth transition when they eventually turn over the organization’s reins.

Motivated at least in part by “investors’ anxiety over rocky corner office transitions,” these and other companies have taken to linking CEO performance awards to succession planning, with 16 Fortune 1000 firms disclosing such links in their latest regulatory filings, the article notes.

At the Santa Clara, Calif.-based Intel, for instance, now-former CEO Paul Otellini has received $4 million in stock and cash since January 2013 for his part in bringing along Brian Krzanich, who took over Otellini’s old post in May of last year, according to the Journal. Otellini, who has already gotten $1 million in cash, can sell half of his $3 million worth of shares this May.

Other organizations are taking a slightly different tack. Phoenix-headquartered electronic component distributor Avnet is basing chief executive Richard Hamada’s next annual raise partly on his succession planning prowess. Promoted to CEO in July 2011, the 56-year-old Hamada told the Journal he “hopes to run Avnet for a total of eight to 10 years,” but noted that he now gives detailed succession updates at every board meeting.

Board members at Marriott International believe that “continuity of management is critical,” David Rodriguez, the Bethesda, Md.-based hotel chain’s CHRO, told WSJ.  As such, CEO Arne Sorenson’s ability to secure the board’s approval of his CEO transition agenda factored into the amount of his bonus in 2012, according to Rodriguez. He estimated that roughly 10 percent of the nearly $1.95 million bonus bestowed upon Sorenson reflected such individual achievements.

The Journal article may describe the practice as a fad, but, as directors become more involved in grooming future leaders, this type of reward system “will be commonplace in a decade,” Dennis Carey, vice chairman at Los Angeles-based Korn/Ferry International, told the paper.

In fact, the number of companies taking this approach is poised to triple in the next five years, according to Patrick McGurn, special counsel for proxy advisory firm Institutional Shareholder Services Inc.

Time will tell if that prediction is on the money, but McGurn makes a compelling—not to mention concise—argument for tying a CEO’s pay to his or her role in succession planning efforts.

“Nothing tends to focus CEOs’ attention,” he told the Journal, “like … good, swift kicks to their incentives.”

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An Eye to the Future

As I’m sure many of you are aware, HRE has published a fair share of stories on the need for HR leaders to pay closer attention to their own talent pipeline.

159252853In light of this, I’d like to once again call your attention to an initiative introduced by the National Academy of Human Resources a number of years ago aimed at raising future leaders in the profession: The NAHR Ram Charan HR Essay competition, which is now open to undergraduate and graduate students majoring in HR, industrial/labor relations or related fields.  In addition to the priceless prestige that goes with being selected a winner, award recipients also receive handsome cash prizes of $20,000, $10,000 and $5,000. The deadline for submissions is Aug. 1.

This year’s topic ….

Performance Management – A Very Real Issue for Employers and Employees.  Students are asked to identify a new way to measure and improve employee performance that is efficient, effective, and will be embraced by employees because they view it as a fair system that is helpful to them in their career.  The new process must be measurable for effectiveness, contributions to the success of the organization, and reassure management that the right people are being rewarded.”

If you know of anyone who might be interested in participating in this competition, please pass on the above link.

And if you’d like to get a sense of some of the original research and thinking that resulted from last year’s competition, check out the first, second and third place winning entries, submitted by Tiffany Scheff and Josie Trine of Cornell University’s ILR School; Joseph Redlitz of Rutgers University, and Indranil Dey of the Asian Institute of Management in the Philippines, respectively. Their topic: “How are electronic technology and social media affecting the employment relationship between employers and employees; and the roles, responsibilities and contributions of HR organizations?”

I suspect those of you who do will walk away feeling a bit better about the profession’s future.

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Concerns about CEO and C-Suite Succession

We’ve written ad nauseam, it seems, on the dire importance of fixing the business community’s subpar succession-planning systems, especially CEO and C-Suite succession.

178125175 -- CEO successionJust Thursday, Editor Dave Shadovitz filed this report from the i4cp conference in Scottsdale, Ariz., on some valuable lessons learned about succession at Xerox, including the key role HR had — and has — to play. And just a few months ago, our January/February cover story, “Building a Better Pipeline,” suggested business leaders are truly starting to get the importance of planning ahead for top vacancies and are paying closer attention to the problem.

Unfortunately, at least according to two releases that came across my desk earlier this month, “starting” to get it appears to be happening with a great big capital “S.”

This March 6 report from Stanford Graduate School of Business faculty member and researcher David Larcker finds only 46 percent of executives and directors at 20 companies polled have a formal process for developing successor candidates for key executive positions.

“The corporate leaders we interviewed all believe that succession planning is vitally important, but the majority do not think that their organizations are doing enough to prepare for eventual changes in leadership,” says Larcker, “nor are they confident that they have the right practices in place to be sure of identifying the best leaders for tomorrow.”

Then there’s this bad news released a day before from IIC Partners. According to its survey of 1,270 business leaders from around the world, 80 percent of senior executives say their company would need up to a year to replace them if they left. And this despite the fact that almost six in 10 say their company has a succession plan in place!

As Paul Dinte, chairman of IIC Partners, puts it: “It is one thing to have a written succession plan, but quite another to be prepared for the departure of a C-level executive.”

No matter the location or the industry, he says, “there remains a gap in succession planning by many organizations, [an oversight that] will likely be worsened with the continued exodus of baby boomers from the workplace.”

If there’s any good news from the latest research, perhaps it’s in this report from Challenger, Gray & Christmas indicating that CEO turnover appears to be falling. The story in the above link, which appeared in the Central Valley Business Times, says turnover among U.S.-based CEOs declined 14.5 percent in February, as 112 CEOs left their positions during the month as opposed to 131 CEO departures in January.

While the numbers aren’t earth-shattering, at least there appears to be fewer top posts opening up to provide nightmares to those employers, and their HR leaders, with inadequate succession systems in place.

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Lessons from Xerox’s Succession Experience

When Ursula Burns took the reins at Xerox Corp. in 2009, succeeding then CEO Anne Mulcahy, she became the first woman in Fortune 500 history to succeed another woman as CEO. She also became the first black women to lead a Fortune 500 company.

478242399Former Xerox CHRO Pat Nazemetz shared the first informational tidbit during her compact 20-minute presentation on Xerox’ CEO-succession story during day two of the 2014 i4cp Conference in Scottsdale.

Of course, neither of these two points about the Mulcahy-Burns succession story is terribly surprising. The CEO position continues to be male-dominated at Fortune 500 companies. Hopefully, that will change someday; but for now, I suppose I’ll just tuck these two facts away in case I ever become a contestant on Jeopardy. (Don’t hold your breath.)

Nazemetz left Xerox in 2011 and went on to launch her own consulting firm — NAZ DEC LLC. Her LinkedIn profile notes that she held the top HR role at Xerox through four CEOs.

As far as Nazemetz is concerned, succession should be HR’s “core competency.” At the end of the day, she said, “it’s what HR needs to be good at.”

Nazemetz, who described the Mulcahy-Burns succession as the capstone of her HR career, went on to detail a few of the lessons she learned along the way, including:

  • Don’t leave talent to chance. “We were very lucky at Xerox. We had two women leaders who didn’t leak out of our pipeline,” she said, adding that she realizes it’s not likely to happen ever again.
  •  Make time your ally and not your adversary. CEO succession should always be in play and the best boards are always thinking about it, she said. (Nazemetz noted that HR needs to be the choreographer of the process and transition, making sure that all of the pieces come together.
  • Ensuring an effective transition takes every skill and capability HR leaders have available to them. “You need to be a trusted adviser,” she said. “You need to be a translator, communicator and mirror.” By mirror, she means HR needs to be able to hold up the mirror to both the CEO who’s leaving and the incoming CEO and let them know how the transition is impacting the organization.

Nazemetz told the audience that Xerox learned some tough and memorable lessons when it brought in an outsider to lead the organization. Recognizing its error, she said, the board eventually promoted Mulcahy, who led a dramatic transformation at the company. (Xerox, Nazemetz said, was flirting with bankruptcy at the time.)

As a result of her experiences with succession, Nazemetz said she embraced the goal of having three successors for every key position at Xerox.

Nazemetz’ talk was preceded by another 20-minute presentation on accelerated development at Shell Oil Co.

Delivered by Michael Killingsworth, vice president of learning and organizational effectiveness for Shell’s Upstream Americas business, the talk touched on a yet-to-be-publicized (yes, you’re hearing it here first) facility slated to go live in September that’s aimed at speeding the training and development of offshore workers.

According to Killingsworth, it’s a first-of-its-kind facility in the oil industry. Plans, he said, are to officially publicize the new center later this year.

Currently, Killingsworth said, it takes two years to prepare workers so they can do their jobs on these offshore platforms. But once Shell’s new facility opens at the Robert Training and Conference Center one hour north of New Orleans, the time it takes to ready these workers will be trimmed to just six months.

The initiative is known as BOOST (Basic Operations Offshore Skills Training) and will enable Shell to train workers on how to do their jobs at these offshore facilities without leaving land.

In effect, Killingsworth said, Shell will be using simulators to create an offshore platform onshore. (Sounds similar to the way astronauts are trained, right?)

“Once they’ve finished their six months,” he said, “[trainees will] have everything they need to receive certification, and all of the qualifications they’ll need to go out on the platform and begin to work.”

Trainees in the program will rotate between two weeks on the simulated platform and two weeks off.  During the last month of the training, they will go through simulated incidents that they will have to react to.

Killingsworth didn’t share what the facility will cost Shell, but I have to think the global oil giant has performed a cost-reward analysis on the initiative and concluded the time-savings make it well worth the expense.

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NAHR’s 2013 Essay Contest

HR’s always talking about the importance of having a robust talent pipeline. But what about its own pipeline? Is the profession doing enough to develop the next generation of HR leader?

To that end, the National Academy of Human Resources launched its Ram Charan HR Essay Contest in 2011, aimed at recognizing thought leadership among university undergraduate and graduate students in the fields of HR, industrial/labor relations and related fields.

medallionThe contest is made possible through a generous donation by NAHR Distinguished Fellow Ram Charan to the NAHR Foundation.

For the 2013 contest—which has an Aug. 1, 2013 deadline—the students are being asked to address the topic of electronic technology and social media, and how these are affecting the employment relationship (from hiring to engagement to retention) between employers and employees; as well as the roles, responsibilities and contributions of HR organizations. Clearly a timely and relevant topic.

Prizes of $20,000, $10,000 and $5,000 will be awarded, with the winners being officially announced at the Nov. 7 NAHR Annual Dinner. (Essays will be evaluated and judged by a panel of HR professionals who are Fellow of the NAHR.)

Kudos to Charan, a respected author, speaker and business consultant, and the NAHR for providing students with this worthwhile opportunity. Details can be found on the NAHR site.

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On Cancer Survival and Hiring Best Practices

Not one to peddle books on this site, but one caught my eye today that ties in enough with issues we’re currently grappling with that I thought I’d share.

Jim Roddy, president of Jameson Publishing in Erie, Pa., just wrote this book, Hire Like You Just Beat Cancer, to drive home his newfound perspective on just how crucial it is to hire the right people — gained through his own bout with colon cancer at age 32.

I was especially taken by this excerpt from the book:

Too often, we hire people whose full potential and ambition are invested in performing the jobs they’re hired for. Then, when we need more from them, they’re not able or willing to go the extra mile. Your goal should be to have at all times (or be working toward) at least one employee with the skills, personality, character, mapping, ambition, and technical competence to take over your position right away.”

So happens we’re currently putting the finishing touches on a Sept. 16 Human Resource Executive® cover story that reveals just how much work is still needed by chief human resource officers to find and develop their own replacements. One survey the writer cites shows a pretty dismal number of CHROs who were developed and hired from within their organizations last year — a pretty clear indication of how few top HR executives are actually selecting and preparing their top subordinates to take over their jobs — tomorrow, if need be.

Roddy’s book contains many of his lessons learned, as spelled out in this release: guiding principles for hiring, interview best practices (such as behavior-focused techniques), recruiting strategies for finding great performers, even emotional outcomes the interview process should achieve: “candidates feel the company is professional, their quesions are answered, candidates were happy to interview, candidates are told of the job’s difficulties,” the list goes on.

As Roddy writes in the book: “The lessons I learned when cancer knocked me down helped build me up as a hiring manager, and I apply those lessons aggressively every time I interview a potential employee.”

Whether you order a copy of his book or not, perhaps it could serve as a suggestion/reminder that your own succession plan and hiring practices might merit a second look, through the more focused and urgent lens of suddenly not being able to report to work tomorrow.

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Bamboo Ceiling Shows Few Cracks in U.S. Boardrooms

This isn’t the first time I’ve come across information about the need for more Asian-Americans in top leadership posts in corporate America. But these numbers I found surprising enough to share.

In two separate reports, Los Angeles-based Leadership Education for Asian Pacifics Inc. has unveiled pretty telling evidence that, no matter how well-trained and well-educated they are, Asian-Americans are still woefully missing from America’s boardrooms.

In this study, LEAP finds 116 Asian and Pacific Islanders held 135 board seats at Fortune 500 companies in 2011, representing 2.4 percent of the total number of board seats at those companies. Worse still, a staggering 77.8 percent of those companies have no API representation on their boards.

In another study, the organization finds 75 APIs holding 78 board seats at the top 100 nonprofits in this country last year, representing 2.55 percent of the total 3,061 board seats in those nonprofits.

Contrast that with the fact that these API Americans constituted 6 percent of the U.S. total population in 2010, according to a report by the Selig Center for Economic Growth that incorporated U.S. Census figures, and its buying power was expected to grow 42 percent from $544 billion in 2010 to $775 billion in 2015.

Somethin ain’t right. This definition of bamboo ceiling from Wikipedia reveals another nuance of what certainly looks and feels like bias to me:

Bamboo ceiling – The exclusion of Asian-descendants from executive and managerial roles on the basis of subjective factors such as “lack of leadership potential” or “inferior communication ability” whereas the East Asian-descendants candidate has superior objective credentials such as education in high-prestige universities (in comparison to their white counterparts with only lower-prestige university credentials).For example, research shows that there are a decent number of partners at leading prestigious law firms in the United States who did not attend top notch law schools. However, an East Asian American partner of a leading law firm who did not attend a “Top 16 Law School” (according to the U.S. News ranking) would be seldom found.

LEAP CEO Linda Akutagawa took a good part of an hour today to talk with me about the problems of perception and cultural differences that both Asian and western employers and employees need to work on. In other words, just because Asian values include speaking only when you have something important to say, and showing respect for colleagues and — most especially — your boss by keeping quiet when they’re speaking doesn’t mean Asian-Americans don’t have leadership skills.

“Companies, and their HR executives, should really be looking at what leadership really is in their companies,” she says. “Does it mean aggressive, networker, fast on your feet, good communicator? Or does it allow for someone who does not exhibit those behaviors?”

And Asian-American workers, she says, need to better understand how their values and cultural behaviors are impacting their career-development paths. That’s something her group can help with, along with helping HR leaders design and execute better Asian and western outreach and education efforts.

“There are so many things HR executives can do to better these numbers,” Akutagawa says. And they should, when you consider the skills and talents companies are missing out on in top-leadership and board positions. “A lot of corporations have nonprofit partnerships; HR executives could be getting more active and vocal about trying to place talented and interested Asian-Americans on their boards so they can be getting that kind of corporate-leadership experience.”

The most important focus for HR leaders, though, should be on building up their talent pipelines to include more Asian-Americans, she says. “My hope is for HR to think long-term about this,” she adds, so API top talent is able to move beyond mid-management — where most of these employees’ career ladders end — so they’re better represented in the top-management succession chain and top-of-mind instead of disregarded when board positions open up.

The good news, small though it may be, is that the Fortune 500 board-representation numbers from 2011 are at least better than 2010, when 96 APIs held 115 board seats, representing only 2.1 percent of the total 5,520 board seats at those companies. Long way to go though.

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