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Internal Vs External Succession Planning at Board Level

10 Aug 2018

Estelle Davis

CEO succession planning can be a loaded process. While the best option could be an external candidate so that a fresh pair of eyes can contribute to new development of the business, some of the most successful succession planning happens when focusing on internal candidates.

When it goes well, succession planning can produce a really strong internal successor who understands the company’s values and strategy and can drive the organisation’s growth and shareholder value. It’s vital for both the board and the HR department to groom the next generation of leaders.

Most boards try to establish a process early on that readies potential internal candidates so that succession planning is ultimately a smooth transition but unfortunately this process can be easily derailed. We’ve examined the pitfalls that come with internal succession planning.

No transparency for internal candidates

A good succession plan may mean transparency for the board and greater alignment around the strategic direction of the business. However it means nothing to potential candidates if there’s no transparency around the process. Losing a strong internal candidate is a huge risk. Even if they didn’t want the top job, they could be a strong support for the incoming CEO and losing them can weaken the entire leadership team, thus affecting the success of the business. Keeping internal candidates abreast of developments in the process, including changes in the timeline is vital.

It’s also important to keep the lines of communication open. This usually would entail constant check-ins on their plans to develop their particular functions within the company and getting them to meet the board regularly rather than just the CEO. A board taking an active interest in an internal candidate has a twofold advantage; (a) that the process would generate trust in the candidate by the board and (b) that it minimises the risk of that candidate leaving for an external role. The main challenge however is to keep internal candidates engaged so that they don’t start considering a move elsewhere.

Insufficient time to train / develop internal candidates

Our recommendation is always to start as early as possible. Some organisations do enlist the help of third parties to identify internal talent at an early stage. Other companies take the decision that their board and Chief HR Officer are enough to build a strong view of potential candidates within the organisation. This plan (and the potential candidates’ progress) should be reviewed on an annual basis if not more.

It would be naïve in the extreme to think that all organisations get the luxury of time to develop internal candidates. There can be times when external circumstances radically affect timing of a CEO’s departure or the board can simply be uncomfortable with the ability and willingness of internal candidates to step into the role. All of these factors can and do increase the likelihood that an external candidate could be the best choice.

Overlooking internal candidates

Sometimes a narrow view of internal candidates can be the best reason to engage with a third party in order to identify internal talent. In some cases, the board lacks the relevant insights to pick the best person. Most of the board only comes in once a quarter and do not work with potential successors on a daily basis so would not be in a position to gauge strengths and weaknesses. This is when the involvement of a third party such as an executive recruiter is key. They can benchmark the external market on a confidential basis so that a board can compare it to their internal pool of candidates and either (a) take the time to close knowledge gaps and develop those potentials or (b) decide to go externally.

Charisma, great communication skills and daily interaction with board members can blind a board to a candidate’s potential weaknesses, leading to the promotion of someone less strategic. Sometimes boards need to be willing to cast the net further and consider someone a few rungs below on the corporate ladder. This is when more time is needed to develop these candidates so early identification and intervention is critical

Managing the transition process

It is unfortunate that in many cases, even when the succession planning has all gone smoothly and the chosen internal candidate is very nearly in situ, boards tend to ignore the importance of a seamless transition process, assuming that all relevant parties can simply get on with the job. It is vital that the board stay involved in the CEO transition to help the process along. The transition involves a number of things; communicating with stakeholders, ensuring that the outgoing CEO can provide support where possible to the new incumbent, planning retention strategies for those candidates not selected for the position as well as helping the new CEO establish a clear plan for their new leadership.

Even with the best internal preparation, there still may come a time when the board ultimately decides to look externally for the next CEO. However identifying potential successors early on and providing them with exposure to the board and the wider business can only lead to much more engagement with these senior leaders and ultimately success for the organisation as a whole.

Estelle Davis is the Managing Partner of Brightwater Executive and recruits exclusively for C-Suite professionals across Ireland and overseas.