By Monica Agarwal, Head – Financial Services & Co-Head – Board Services, Korn Ferry, 0
The Chief Executive Officers of any organization today have a more difficult job than their predecessors. In today’s VUCA world, the rapid pace of digital transformation has led to industries being revolutionized and the existing world order being challenged, or even overhauled. In addition to digitization, the uncertainty in various matters including political, regulatory, and even health has led to vastly enhanced pressures and demands from the only peer-less role in the organization. On an average about 10 percent to 15 percent of organizations need to appoint a new CEO (on account of retirement, resignation, dismissal, or ill health). It comes as no surprise then that 2019 witnessed the highest churn in CEOs (in a study done in listed organizations in the United States of America).
The consequences of having the CEO chair lie vacant due to lack of a succession pipeline or onboarding the wrong person for the job could be disastrous. Estimates suggest that up to 40 percent of new CEOs fail to meet performance expectations in the first 18 months. Latest research by The Conference Board found that costs of delayed leadership change at the top was an expensive proposition and generally equivalent to five percent of the annual profit (considering severance pay, search process, lost productivity during the transition, and other factors). Given the high costs, timely and well-planned succession at the top has never been more critical for organizational health.
CEO Succession has become the buzzword in corporate circles recently in India, particularly in the aftermath of a few high-profile events that played out in the public domain. As per Boards that Lead study undertaken by the National Stock Exchange (NSE) in partnership with Korn Ferry last year, boards of over 70 percent of NSE listed organisations recognize the strong need for it but only 43 percent have clearly identified a successor.
Going deeper, our global research revealed that while organizations may be aware of the importance of the succession process, less than 1/3rd of companies say they are effective at building the next generation of leadership capabilities. In our constant endeavor to enhance the standard of corporate governance in the country, it is critical that we institutionalize a global best practice in this area – CEO Progression.
While the term may sound like CEO Succession, CEO Progression does not merely focus on the selection of the CEO but is a process that is sustainable as a long-term solution. It is a continuous process that requires years of meticulous and dedicated planning with active involvement from the Board and executive leadership to monitor and guide the process.
At its core, CEO Progression is a robust process that provides a comprehensive pipeline of best-in-class internal and external talent readily available to fill the shoes of the CEO when the need arises. This process comprises parallel sub-processes such as assessing and developing internal successors, identifying and engaging with top external talent in the market and creating the right ecosystem to ensure success of the new leader.
Given the highly volatile and uncertain global context that we live in, it is important for organizations to develop different leaders who would be able to handle various mandates
Assessment and development of internal successors
Given the highly volatile and uncertain global context that we live in, it is important for organizations to develop different leaders who would be able to handle various mandates.
In 2019, 82 percent leaders reported enhanced emphasis on their high potential program compared with that five years ago. Yet only 14 percent of them feel very confident that the right people have been selected for these high potential programs. Hence, it is paramount that organizations leverage the best research to select and develop their future leaders.
Our research tells us that to better identify the right people, companies can include self-nomination in addition to manager nomination, use robust assessments to test for potential to mitigate subjectivity, bias and prejudice and look for learning agility, self-awareness, resilience, values and core drivers. To better develop these leaders, the company can leverage robust career mapping and targeted goal setting, high impact job rotations, mentoring from senior leaders and build mechanisms to track the progress of these leaders.
Identification and engagement with top external talent
Given the rapid pace of growth in the industry, it would be in the organization’s interest to continuously scan the market for potential talent and engage with them. This would also enable the organization to calibrate the quality of skill sets, readiness and even compensation of potential internal successors with the best that the market has to offer. The purpose of this entire outreach might not only be to plan for the CEO’s role but also to identify viable leaders at the enterprise level.
Creation of the right ecosystem to ensure success
Korn Ferry research tells us that only a quarter of organizations believe they have a ‘ready now’ talent pipeline to take on larger leadership roles. At the same time, a series of interviews with top CEOs conducted by Harvard Business Review highlighted how around 50 percent of them mentioned how the role was “not what they had expected beforehand” and that most of them found the move challenging.
What this tells us is that, in the real world, hardly any executive is 100 percent ready for the challenges that the CEO role has to offer. Therefore, it becomes increasingly important for organizations to create a support system to ensure the success of these leaders and enable them to thrive in the role. A longer plan needs to be visualized and defined in addition to the first 100 days on the job. The Board needs to ensure that there is a strong tier of leadership for the CEO to drive success in the role, especially considering that the new incumbent would have little time to come to grips with the weight of expectations that come with the role.
To summarize, given the times we live in, managing a transition in the CEO role has become even more challenging. It is in the organization’s best interests that it creates and develops a strong pool of leaders to potentially move into the apex role, while keeping an eye on the talent market for the same. To this endeavor, CEO Progression is a global best practice that organizations could seek to embrace to usher them into the new dawn.