#MeToo Movement Exposes Lack Of Succession Planning

Boards and CEOs across industries, such as entertainment and technology, have been engaged in critical reflection and corrective actions concerning their corporate cultures in the era of the #MeToo movement.  Recently, after employees walked out, Google changed their sexual harassment policy. Within days, Airbnb and eBay followed Google’s example.

For many companies, this cultural movement brought about much-needed changes to policies, management practices, and executive personnel to begin the process of creating a culture that embraces diversity and rejects both explicit and implicit acts of sexual harassment and hostile work environment.

One the most dramatic examples of a global company initiating major cultural changes in 2018 was Nike, Inc. As reported by The New York Times, a small group of courageous women at Nike—fed up with a culture that tolerates sexual advances, harassment, and gender discrimination despite the many complaints lodged with the HR office—conducted a covert survey that asked their female peers about the prevalence and nature of sexual harassment and hostile workplace incidents across the company. Unbeknownst to the HR office, the report of survey findings were sent directly to CEO Mike Parker, who subsequently initiated an administrative review process whereby 11 top executives  left the company. Included among the many executive causalities of this crisis was Trevor Edwards, President of the Nike Brand and heir apparent to CEO Parker.

While the crisis endured by Nike illustrates the dire need for many companies to rigorously examine their corporate culture and ensure that workplace policies, management practices, and norms respect and encourage the best work from all employees, it also underscores a ticking time bomb for many organizations across industries: the complete absence or severely underdeveloped succession management capabilities. Overall, a shocking majority of organizations neglect to develop any formal succession planning practices or does so on an ad-hoc, episodic basis.

Consider the following data that highlight the general lack of preparedness for either planned or unplanned executive exits. Among Fortune 500 companies, only 54 percent actively developing CEO successors, while 40 percent report not having a single internal candidate to replace the CEO should he or she exit the position. The costs of relying on external talent for executive roles, including executive search costs, delayed strategic planning and capital projects, and ‘cascading turnover’ high-performing direct reports who feel overlooked when key executive positions are filled, is substantial. The cost of forced CEO exits and failure to develop robust succession management capabilities is estimated at $112B of lost market value. Even among companies that conduct formal succession planning, the vast majority do so exclusively for the CEO position while neglecting the many other strategically critical executive roles. In short, most organizations across industries have failed to develop comprehensive succession management capabilities that extend far beyond the board and far deeper that the CEO position.

Why do so many boards and executive teams fail to develop robust succession management capabilities? There exist at least seven common misnomers associated with executive succession that often delay or complete undermine company-wide efforts to develop formal succession planning practices.

• For many boards and executive teams, there is a misguided belief that executive succession is exclusively for the CEO position or for family businesses.

• For other organizations, the misunderstanding stems from the errant view that CEOs are exclusively responsible for identifying their successors—thereby precluding the need for any formal company-wide process.

• For public companies, the misunderstanding regarding executive succession stems from the fear that CEOs who initiate or support any succession management process are signaling their exits and therefore risk driving uncertainty in equity markets.

• Several executive succession misnomers are related to the process itself and how it becomes operationalized throughout the company.

• For many companies, the errant belief is driven by concerns about the costs of developing succession management capabilities as exceeding the benefits or returns. On a related note, the misguided view that succession planning must be (or should be) owned by HR stunts the organization’s full commitment to a robust set of capabilities.

• Finally, and most importantly, many boards and CEOs evidently remain committed to the notion that succession planning is a discrete event to managed when necessary. As the Nike case and numerous other examples illustrate, succession planning capabilities must become embedded in the company’s culture and operations in order to meet the demands of both planned and unexpected transitions in executive roles.

Given the rapidly increasing risks associated with both planned and unexpected changes in key executive roles, what concrete steps can boards and executive teams take to establish formal, robust, and high-impact succession management capabilities? I believe there are proven, practical strategies that companies may execute to build the necessary capabilities and capacity for executive departures.

First, boards and CEOs must clearly articulate the alignment between the business strategy and succession planning activities. This process involves identifying strategic talent pools and elevating the strategic priority of succession planning. An important primary step is engaging an external consultant or subject matter expert to conduct a comprehensive audit of all existing succession planning and talent management practices. Often, this process involves benchmarking the company’s succession management practices with industry norms and best practices. The comprehensive audit or review process includes rigorous assessment of the company’s current and projected executive talent, leadership bench strength and diversity across executive roles. For many companies, an important diagnostic activity for jumpstarting the process is conducting an internal study that illustrates the retirement wave, workforce demographics, and the looming vacancies in critical executive roles.

Second, organizations seeking to develop high-impact succession management capabilities must substantively engage the board and executive teams across succession planning practices. This best practice is achieved by fully operationalizing succession planning across the company whereby the HR group provides process support and expertise, rather than ownership of executive succession. For example, board members (or select members such as the Chair and HR Committee of the Board) should be fully engaged in the annual assessment and development planning for the CEO and his/her direct reports. The board should have high visibility of the talent review process that includes comprehensive assessments of the potential successors to the CEO role and their respective development plans. Board members and top executive teams must also be actively engaged in the development of a succession management scorecard that establishes the primary metrics upon which progress and development will be assessed, including both talent-related metrics (percentage of vacant executive positions filled by internal talent, percentage of executive roles with at least one ‘ready now’ internal successor) and diversity-related metrics (percentage of executive roles occupied by women and non-white ethnicities). The development of a formal set of metrics or ‘scorecard’ that is annually reported to the board helps ensure commitment and accountability to succession outcomes across the organization.

Finally, boards and executive teams must commit to developing the building blocks of a high-impact succession management process, including the practical tools, assessments, and practices as well as the less-measurable cultural aspects. Working in tandem with the HR group, executive teams should help design an overarching succession management framework that outlines the mission, values, and assumptions of the process. For example, a critical value that emerges for many organizations involves the risk of ‘talent hoarding’ and general reluctance of executive team members to ‘release’ their most talented direct reports to other business units for targeted development. Executive teams should also be fully engaged in developing the core tools and processes of the succession management program, including annual talent reviews in which all direct reports to executive positions are rigorously assessed and calibrated, the development of robust high-potential leadership assessments, nine-box grid analyses, multi-source or 360-degree feedback, and a comprehensive portfolio of targeted leadership development programs. This critical step ensures that top executives and HR are co-owners of the succession management program’s design and execution.

If 2018 is to be known for anything, it will be the reckoning of ambiguous harassment norms with explicit policy. Overall, boards and CEOs that fully commit to developing succession management as an organizational capability—with the same discipline, formality, and intensity as strategic planning, budgeting, and other core business processes—will dramatically reduce the risks associated with both planned and unexpected executive departures.

Read more: CEO Succession Planning: Crucial and Totally Overlooked