In the most recent McKinsey Quarterly in May 2015 (Read it here), they cite a stunning statistic, that one in three CEO successions fail, because of the wrong person going into the role. That is a huge failure rate, and one that costs business an extraordinary amount of money.
While it is the responsibility of the Board to replace a CEO, it is the responsibility of the CEO to develop a pool of talent for the Board to choose from. And this is where many organisations fail. In fact, McKinsey further quote that two-thirds of US companies have no succession planning in place for the CEO. What are you doing to develop your successor?
The ideal process, according to McKinsey, is a multi-year (say 5 – 8 years) structured program that involves multiple candidates in a rotation system. The CEO is best suited to manage this process as they best understand the business, and what lies ahead (that is, develop leaders for where the business is going, not where it is). The Board should involve up to three board members to work with the CEO and HR manager to ensure the process is taking place and developing talent in-house.
McKinsey identify three areas, or clusters of criteria, to use in developing would-be leaders. These are:
- Know-how
- Leadership skills
- Personal attributes
They also caution about three types of bias that can creep into the process:
- ‘MOM’ Bias (i.e. More of Me) - whereby the CEO is looking for a copy of themselves.
- Sabotage Bias – when the CEO undermines the process by selecting one candidate and favouring them throughout.
- Herding Bias – where the committee adjusts their actions to reflect that of the CEO, thereby removing any independence.
Take the time to reflect on the succession plans (if any) of your organisation for your role. Do you need to start the process? Remember that the bigger the pool, the more options the organisation has to get it right!
The Avondale Business School can help you and your team develop leadership skills – find out how by contacting Warrick Long at the Avondale Business School.
P: 02 4980 2168