Succession Planning for Senior Leadership – How to Ensure a Smooth Transition

Succession Planning for Senior Leadership – How to Ensure a Smooth Transition

Ray O’Rourke made headlines last week after telling the Financial Times that he was working on finding his replacement. After several decades growing Laing O’Rourke, Ray is going to be some act to follow.

Succession planning is always challenging and the business risk grows with the seniority of the post. On all these measures, the difficulty of Laing O’Rourke’s mission is high.

But all organisations eventually have to handle tricky handovers of power. Whether it is the retirement of a long-term Chief Executive or the poaching of a senior Director. There are various things that can be done to maximise the potential of a smooth transition.

1. Plan ahead

Ideally companies should think about succession planning long before they need to carry it out. This means identifying key individuals who would leave big gaps if they departed. Although some exits can be foreseen, others can happen unexpectedly.

The next task is to identify and develop people with the right attributes to fill these critical roles when the time comes.

2. Look internally

A study by the Stamford Graduate School of Business, which looked at 1,000 big firms in the US, found that two-thirds of Chief Executive appointments in the 2000s were internal. Where possible try to find someone from within the company to succeed key leadership roles. Then you are saving yourself the risk (and cost) of an external recruitment process. This also allows you to increase the time you have to prepare that individual before they step up.

If succession planning is carried out effectively then two or even three people internally might be identified as potential successors. By giving increasing levels of responsibility you can see who handles it best. The only downside with this approach is that only one individual can get the job. This could lead to the others becoming disillusioned. A high-profile example is GE where the unsuccessful internal contenders for the CEO role often leave soon after the new CEO is announced.

3. Hire for two jobs at once

If you decide you have no credible candidates in the business already who could develop to succeed a key leader, be proactive and work out where you could bring someone in from outside as a stepping stone.  Clever recruitment is needed. You need to ensure someone is targeted with the ability to step seamlessly into a useful position in the short-term. But also has the ambition and drive to take on the bigger job when required.

This process is fraught with potential complications. Managing expectations is key as well as an understanding that things do change. But doing something is better than doing nothing.

4. Pick horses for courses

If all the above fails and a key executive or Director declares their intention to leave before any meaningful succession plan can be put in place, then organisations have to go to the open market and turn the situation to their advantage. Although acting sooner is preferable.

If a business is doing very well, then it makes sense to look for a leader with similar values and strategies as the person departing. But if things have started to slide, it could be time to look for someone with different ideas and the ability to implement them. An external hire can be of benefit when looking to introduce major change. Such as when Balfour Beatty brought in Leo Quinn from QinetiQ to reorganise its business in 2015.

If a business has a clear future plan to transform, it makes sense to look for someone with experience in the new target area.

5. Prepare the ground

Anyone coming in from outside to lead a company in the wake of a long-standing personality has their work cut out. If the person leaving is remaining in a different role, such as Chairman or as a majority shareholder, then it can be even harder. It is important that shareholders are honest about the level of autonomy an incoming Chief will have, to avoid friction in the future.

Then it is about setting someone up to succeed rather than fail. Can you organise a meaningful handover period with the person leaving? If not, can an existing employee who is respected and understands the company culture step up to support the person coming in? How can you maximise the chances of a smooth handover of power? Executive coaching can also be a useful tool.

It will be interesting to watch how Laing O’Rourke go about replacing their founder. It won’t be easy.

For advice on your own succession planning, please get in touch to arrange a confidential discussion.

Author: Jim Newsom

Jim Newsom

Managing Director