+65 9001 0001 kelvin@kelvinkhoo.com

The case for succession planning

by | Apr 3, 2008 | Businesses Real World Contingencies | 0 comments

Business Times – 01 Apr 2008
 

The case for succession planning

By KATHRYN YAP

SUCCESSION planning for senior executive positions is a long-established and well-regarded management tool. It’s undeniable that advance planning can smooth out the business disruptions caused by inevitable executive transitions. Yet, while succession planning appears prominently on the priority lists of most C-Suite teams and boards of directors, the actual task of succession planning is too often pushed aside or into the future as companies attend to business matters that are seemingly more pressing.

manpower.jpg 

That’s true in Asia, as it is across the global marketplace. When corporations are operating under normal business conditions, without a succession crisis looming, succession planning tends to be an under-utilised strategy.

Of course, a crisis situation – such as an imminent or recent executive vacancy, a severe business downturn, or a major crisis of confidence within the investor community – will bring the succession topic to the top of a board’s agenda. Without such a crisis, however, succession planning remains a business priority that somehow never quite gets included in this month’s meeting agenda.

Evidence suggests that this lack of succession planning is a global problem. Some 24 per cent of corporate directors who participated in a 2007 survey by Thomson Financial revealed that they had not engaged in succession planning for their chief executive in more than one year. A full 10 per cent of the directors said they had never discussed CEO succession plans.

A separate study by PricewaterhouseCoopers and Corporate Board Member magazine found that 35 per cent of the board directors surveyed are dissatisfied with their company’s succession plans, primarily because the topic is not regularly included in the board’s agenda.

The case for succession planning is strong. Succession planning fosters continuity, increasing the likelihood that the company’s leadership vision, core strategies and corporate values will be uninterrupted if and when there is a change in the most senior leadership.

Unplanned, reactive changes in top leadership are highly disruptive, and can create negative repercussions throughout an organisation.

Succession planning is especially critical in the Asia-Pacific area, given the business opportunities, talent supply-and-demand pressures and other market dynamics present in the region. Asia-Pacific countries are expected to enjoy the world’s strongest economic growth during 2008, and for the foreseeable future.

Corporations of all sizes are implementing near-term and long-term growth strategies to capitalise on this opportunity. That corporate reliance on tapping the Asia-Pacific’s growth has only increased as the US and other major global economies face recessionary pressures and financial retrenchment.

But the shortage of top-tier executive talent in the Asia-Pacific region presents a significant stumbling block for these corporate growth ambitions. Employers are accessing talent from around the globe to fulfil leadership needs, and the related costs are not insignificant.

Salaries in the Asia-Pacific area have been rising dramatically, and the region’s workers are again expected to enjoy the world’s largest salary increases during 2008, with an average anticipated salary increase of 7.3 per cent, according to human resources research experts ECA International. C-Suite executives with Asia-Pacific regional experience are highly sought after, have tremendous mobility and command premium salary packages.

This extremely hot and volatile talent market is leading some employers to question whether an investment in leadership development and succession planning delivers a sufficient economic benefit. Why invest the time and resources in career advancement and succession planning efforts if those most qualified executives will simply leave the company, taking their training and experience to a competitor?

At CTPartners, we firmly believe that the corporate benefits arising from leadership development and succession planning are significant, and clearly outweigh the costs. It is important to remember that succession planning and employee retention go hand-in-hand.

While succession planning will fail without adequate senior management retention, employee turnover will skyrocket if promising executives have no window to their future advancement within the company.

It is inevitable that a corporation will lose some valuable employees to a competitor despite corporate leadership development efforts. But corporations can expect to lose a far greater number of key executives if they fail to invest in their emerging leaders and make career advancement opportunities visible to those executives.

When a high-potential, rising executive believes that the company is recognising his talent, and grooming him for future promotions, the executive will be motivated both to contribute his best effort and to remain with the company.

Conversely, if that up-and-coming leader knows that the company does not engage in succession planning, he will be motivated to look outside the company for career advancement. The result is an expensive and escalating talent problem.

Yes, succession planning does require a corporate investment, but failure to engage in it can ultimately be much more costly to the firm.

The responsibility for CEO succession planning lies with the board of directors, and so the best way to ensure that corporate boards attend to CEO succession planning is to establish a succession committee of the board.

The chairman of that committee should report to the board regularly regarding potential succession candidates, efforts being made to groom identified candidates and other matters. An established succession committee will require the board to maintain the appropriate focus on this important topic, even in the absence of a looming succession crisis.

Succession planning for other key executive positions should be handled by the human resources team in conjunction with the CEO. In fact, it is the CEO’s demonstrated commitment to succession planning that will make this corporate priority a business practice reality, and drive it throughout the upper echelons of the organisation.

The writer is managing partner with CTPartners, Singapore.

About Kelvin

26 years and still counting, as a Personal Wealth Manager and part of the inaugural batch of Prestige Elite Advisors from AIA Affluent & High Net Worth Division, the certifications and accreditations have equipped me with the ability to partner Law Firms, Tax, Trust and Immigration Advisory Companies to offer their services to my clients.