KPMG's Audit Committee Insights for July 14, 2010 featured a Corporate Board Member article about CEO succession planning. A new research study of 140 public and private CEOs and boards in North America released by Heidrick & Struggles and Stanford's Rock Center revealed serious planning gaps when it comes to CEO succession. Here is a link to the Corporate Board Member article.
It said that less than half the companies were prepared to name a successor should the need arise. Law firms of all sizes face this same issue. Leaders-in-training isn't a commonly accepted track in law firms. Some firm leaders think it focuses too much attention on the "haves" (and thus, the "have-nots") if you ordain certain lawyers as future leaders.
But in corporate America, I have assumed that succession planning was de rigueur for Fortune 1000 public companies (at least). Not so. Here is a summary of the survey results:
- While 69% of respondents think that a CEO successor needs to be “ready now” to step into the shoes of the departing CEO, only 54% are grooming an executive for this position. “This statistic, combined with the finding that more than half couldn’t name a new permanent CEO if the current chief became incapacitated tomorrow, is a total disconnect,” says Mr. Miles. “It’s hard to imagine that the CEO would be ‘ready now’ if he or she is not being groomed today.”
- A full 39% of respondents cited that they have “zero” viable internal candidates. “This points to a lack of talent management and not paying enough attention to your ‘bench,’” says Mr. Miles.
- On average, boards spend only 2 hours a year on CEO succession planning. “The full boards of respondents’ companies meet, on average, five times a year. Succession planning is discussed at only two of these meetings, at one hour apiece,” says Professor Larcker. “The nominating and governance committee – who often take primary responsibility for succession planning – did not fare much better; respondents reported that only four hours of meeting time is typically devoted to this topic each year.”
- Only 50% have a written document detailing the skills required for the next CEO. Professor Larcker thinks this seems rather low: “If nothing is written down, how do we know that the board really understands what these skills should be?”
- Seventy-one percent of internal candidates know they are in the formal talent development pool, but there is regular communication (typically yearly or bi-yearly) for only 50% of these internal candidates. “There is a large communication gap, which can cause retention issues,” says Mr. Miles. “Executives who don’t know they are even in the running to be CEO might be easily lured elsewhere, where they believe they have room for advancement.”
- The majority of firms – 65% – have not asked internal candidates whether they want the CEO job, or, if offered, whether they would accept. “Many firms simply assume that their top choices want the job, but that is not always the case,” says Mr. Miles. “More and more, we see executives who don’t want to be in the spotlight as the CEO, given the extreme public scrutiny associated with the position. Making this assumption without checking can cause real problems down the road.”
- Once viable internal candidates for the CEO job are identified, 60% of firms think that the external search should continue at the same pace. “This is a big mistake,” Mr. Miles warns. “Companies lose strong candidates when they keep the outside search open too long even though they have perfectly capable internal talent.”
- While 69% of respondents think they have an extremely strong or very strong understanding of the capabilities of internal candidates, only 19% have extremely or very well established external benchmarks to measure their skills against. “It is another disconnect between perception and reality,” says Professor Larcker. “How do you know that a candidate is strong unless you compare him or her against the marketplace?”
- Only 50% of companies provide on-board or transition support for new CEOs. “This is the most important job at the company,” Professor Larcker observes. “Not having the support in place for on-boarding the executive can put the entire organization on unstable ground.”
Executive committees and managing partners -- take heed. Ask yourself these survey questions. We know that poor succession planning by corporate boards can lead to stock price drops, and regulatory and reputational risk. Your law firm will have its own risk-set to manage - start planning before you find yourself unprepared.
What happens if you are forced to elevate a new managing partner or chair and you don't have the right person groomed for the job?