The 1995 award-winning, animated film, Toy Story, can teach business leaders more about succession planning than one might think… Recall the tragic scene at Pizza Planet. Buzz Lightyear (Tim Allen) and Woody (Tom Hanks) find themselves in a real dilemma when, in an effort to reconnect with star command, Buzz stumbles into an arcade claw crane filled with alien squeak-toys mistaking it for a rocket ship bound for home. Woody follows him and the two quickly learn that “the claw” is king. It decides “who will stay and who will go.” As each paying customer tests their skill at snagging one of the green toys, the aliens wait nervously for the claw to determine their fate. The sad truth is this is not unlike succession planning in many organizations today.
Take for example the film’s executive producer, the late Steve Jobs. On October 5, 2011, Jobs passed away, ending an eight-year battle with cancer. It was only August of 2011—two months prior—that he formally resigned as CEO of Apple and named Tim Cook the golden boy.
Back up a few years. In August of 2008, Jobs’ obituary was accidentally posted on Bloomberg’s website. Oops. It was quickly removed but not before it was picked up by a number of visitors to the site. [P.S., reading one’s own obituary is perhaps the most telling performance evaluation one can ever receive.] Jobs’ obituary by Bloomberg contained a clause to be printed in the event that the stock value dropped, “The decline is no surprise to investors and analysts. Jobs never named a successor.”
In contrast, Bill Gates, co-founder and long-time CEO of Microsoft, had obviously groomed Steve Ballmer for leadership long before retiring. Gates and Jobs are often regarded as sworn enemies of the modern West. The two tech tycoons were also very different in their approaches to leadership. In terms of succession planning, Gates had noticeably started preparing for his exit from the company years before the transition so that, by the time Gates stepped down in 2000, transition appeared to be a nonissue. Jobs, on the other hand, seemed emphatic on retaining the CEO position at Apple and shrouding any plan to name a successor. Loyal customers, the media, and Apple employees alike had posed questions about his health and ability to continue leading the company. On one occasion, Jobs responded to concerns in an open letter stating he “intends to remain in charge and, if at some point he can’t do his job, he’ll make that known, thank you very much,” according to a Newsweek columnist. Of course, Apple survived the eventual transition and continues its great reputation in the marketplace.
But which approach is right? One of the greatest challenges is determining what to share with whom and how much. In today’s world of instant information, something shared today intended only for internal audiences could easily be front-page on The Journal tomorrow.
While transparency with employees, customers and shareholders is important, at some point, your plans can be considered competitive intelligence, right? But, in 2009, the Securities and Exchange Commission (SEC) reversed its long-held position on the disclosing of succession plans.
The ruling subjected most public companies to the requests of their shareholders, who could submit formal proposals to theirs boards for disclosure of CEO succession plans. Apparently, succession plans are critical to Board responsibility and can have significant impact on a company’s day-to-day valuation in the market. According to the American Society for Training and Development, that same year, succession planning was the number one searched topic on their site (no surprise; after the SEC bulletin was released everyone had to figure it out). The ASTD defines succession planning as, “The process of identifying key positions, candidates, and employees needed to meet the challenges that an organization faces in the short term and in the long term.” The organization conducted research and found that only 45 percent of respondents indicated that their organization has a process in place that matches the definition. Many others reported employing a rather simple, informal process for selecting leaders.
A year earlier, in 2008, the National Association of Corporate Directors found that 42 percent of surveyed companies had no CEO succession plan at all. Simply leaving succession planning to an arcade claw crane-like process is costly. Nearly 40 percent of CEOs today are fired or retire within their first 18 months and 64 percent never make it to their fourth anniversary. The average cost of replacing a CEO after 18 months runs into the millions of dollars. Succession planning is most commonly considered a single name of an individual who will serve in a top leadership role following an exit. This kind of planning is important. But researchers suggest that, “even the most rudimentary succession planning is still not happening in many companies. Many firms have zero internal candidates who are ready, or even viable, for the CEO position.” Most are looking outside, as in the recent case with Yahoo and Marissa Mayer, the former “Googirl.”
The bottom line is, in a rapidly changing marketplace, a struggling global economy, and a quickly materializing talent gap, a succession pipeline is just as important as a single succession plan.
Integrating a top-down succession plan with a bottom-up talent development process is perhaps the best solution for filling the succession, or talent, pipeline. When integrating the two approaches for creating a succession pipeline, young talent gets a view of what they could accomplish inside the organization and the leadership is exposed to greater numbers of internal candidates. Conversely, candidates for leadership positions who do not know they are being considered will often fail to see the benefit of developing themselves. As the conversation moves higher up the organizational chart, executive coaching becomes a great way to prepare leaders who may not be “ready now” for the next promotion.
A few items to benchmark your organization’s approach to succession planning:
- Bottom-Up: Develop tools and metrics to track employees’ development and to identify top talent in the organization.
- Bottom-Up: Design a strategy for growing people through regular evaluation, individualized development plans, and formal or informal training. Give them a clear view of where they can go in the organization.
- Bottom-Up/Top-Down: Create a succession pipeline as a function of the current and future needs of the organization, the readiness of your internal talent, and where that talent desires to go in the business.
- Top-Down: Place responsibility of CEO succession planning on the Board and be intentional about routinely giving candidates for top positions time in front of them.
- Top-Down: Finally, utilize the Board as a mechanism for continuity and knowledge transfer. Successful CEOs and key leaders should have a place on the Board after stepping down to continue to guide following generations of leaders.
Don’t skimp on talent development or you’ll lose top performers to competitors in the war for talent. And don’t leave executive succession planning to the arcade claw crane or you’ll pay through the nose on mishandled transitions. Drive the conversation and assure the long-term health of your business.
Clayton Anderson is the co-creator of the LeaderSkilz video series and a manager at The Soderquist Center, a leadership and organizational development center operating out of Northwest Arkansas.
Written for TrainingIndustry.com