One Last Characteristic – Where They Hatch!

A couple of weeks ago I summarized various studies identifying the characteristics of a good CEO.

One I didn’t include is “homegrown.”  A 20-year study of non-financial organizations from 1988 through 2007 by the Kelley School of Business at Indiana University and A.T. Kearney was released this month.

It confirms that one key to superior long-term performance is managing leadership succession because organizations that grow talent from within outperformed those who hired CEOs from outside the organization.

But only about half of public and private organizations have formal succession plans and only 16% of directors on governing boards believe their board is effective at succession planning.

Disturbingly, the tenure of CEOs has shrunk from 10+ years in the mid 1990s to less than 5 years now.   The study finds it even more disturbing that nearly half of all governing board members think succession planning is the CEO’s job and more than half don’t know when their CEO plans to step down.

In conclusion the report’s authors note:

“CEO succession is too often seen as an event rather than a process. Research and experience confirm that companies savvy enough to foster internal leadership succession achieve superior long-term results, and that effective succession management is absolutely vital to a company's sustainability. High risk, significant disruption and burgeoning costs await boards that are not fully engaged in these processes—superior results and high returns await those boards that are.”

I was fortunate that when I retired at the end of 2009, the organization I led had a succession plan which had been adopted half way through my two-decade tenure. To my credit I had taken my responsibilities in the plan seriously without overstepping and to the governing board’s credit at the time, it showed great discipline in following the plan.

I had alerted the governing board five years in advance of when I planned to retire from a nearly four-decade career in destination marketing management and the board executed the succession plan a year and a half in advance of my leaving to provide time for a smooth transition.

As I was departing I was asked to publish a description of the plan for Destination Marketing Association International as a best practice.  Even though organizations of four or five staff members may be too small to groom a homegrown successor, it remains that having a good succession plan is good policy.

By the way, a succession plan is not about the current incumbent selecting or lobbying for a successor.  That rarely if ever works.  The CEO’s role is grooming internal talent to be ready when the time to execute the plan arises and to advise the governing board as it goes through the steps in the plan.

A leadership succession plan covers more than replacing the CEO.

For anyone wishing to build a succession plan or for those who want to improve the one their organization has, the report linked here provides some essential ingredients.