Answers are decidedly mixed. Among the companies taking part in a benchmarking study of succession management and planning -- cosponsored by the Center for Organizational Research (CFOR), a division of Linkage, Inc., and Development Dimensions International (DDI) -- seven do not tell high-potential employees that they've been labeled as such. Six do.
In follow-up interviews, participants came up with a litany of reasons for not telling the employees. But other organizations that took part in the study -- including such highly regarded ones as TRW and Honeywell -- emphatically embrace a do-tell policy. "It used to be that companies guarded their succession plans like state secrets," says CFOR director Linda Murray. "But new technology is opening the way to greater information-sharing within the organization."
Why some companies stay mum
Allstate is typical of firms that routinely don't tell candidates they're in line for a promotion.
Nancy Lovendosk, who manages succession and performance management for the insurance company, sketches out a worst-case scenario: Manager A tells an employee that he is a candidate for a promotion, a conversation that the employee interprets as a promise or, in legal terms, an oral contract. Then Manager A leaves. Her replacement, Manager B, sizes up the same employee but fails to see as much potential as her predecessor did. The so-called promise "evaporates," says Lovendosk. That leaves the former up-and-comer somewhere between disappointed and hopping mad.
What can the employee do about it? One option is to go to a company that seems more appreciative of his talents, a move that is likely to be a loss for his current employer. Or he might retaliate by suing the company for breach of an oral contract.
That's the risk that many companies raise when asked why they don't share high-potential status with candidates. Yet none of the firms we interviewed had ever actually been sued in such a situation, nor did they know of any other companies that had been.
But even if such risk exposure is, in fact, corporate folklore, there are other downsides to setting expectations that you, the employer, may not be able to keep. Things change, says Lovendosk. This year's most-valued competencies or skill sets may become less important next year if business needs abruptly change. It's risky, therefore, to leave a candidate with the impression that there's any such thing as permanent high-potential status, or that he or she is definitely next in line for fill-in-the-blank position.
Professor Rothwell describes other ways in which telling an employee that she or he has been designated a high-potential candidate could, conceivably, come back and bite the manager.
Call it greenmail: the candidate who uses his status as a high-denomination bargaining chip. Perhaps he receives a job offer from another company and, emboldened by his elevated status, demands that his current employer gin up. Or perhaps a headhunter calls -- in that friendly, just-staying-in-touch kind of way -- and the employee mentions his special standing in the company lineup. Absent a non-compete agreement, what's to keep the recruiter from calling that company's competitor with a brash proposal? Hire away a top recruit and you can accomplish two things: bring in top talent and, at the same time, inflict major damage on your rival.
Or take this scenario. Rothwell calls it the Crown Prince(ess) Syndrome: When a high-potential employee hears she's under consideration for a higher position, she kicks back and starts taking it easy on the job. "I've got it in the bag," she thinks. "No matter what I do, I'm guaranteed that promotion."
At issue in each of these situations is not whether a manager should tell the person, says Rothwell, but how. What gets companies in trouble is the perception of a promise or guarantee. And managers have to be coached on how to avoid creating such false impressions (keep reading, we'll get to that).
The benefits of telling
Overall, Rothwell sides with the companies that believe managers should come clean to top employees about their prospects. "In the war for talent, telling candidates can be a retention strategy," he says. "Even if they're just told they're being considered, it's a major motivation to stick around when a headhunter calls and offers them extra bucks" to go someplace else.
Not only does telling employees encourage them to stay put, but it can also clear the way to having frank discussions about the areas in which they need to develop further, according to Michael Thiel, who heads up organization and professional development for TRW's 8,500-employee Space and Electronics unit. "If you're more up-front about their potential, it creates a better context for assessment and development," he says.
Once the cards are on the table, a manager can say, "That's why these three or four flat spots are worth paying attention to." It's a far more motivating conversation than if a manager simply says, "Why do you need to work on these developmental areas? Because you do."
Other companies in the study leave it up to managers to decide whether to tell employees that they've been tagged as high-potentials. CFOR research suggests that as more HR processes -- including succession planning -- move online, and as responsibility for those processes shifts back to the business unit, companies may lose their ability to keep succession tightly under wraps.
The impact of technology
Take Allstate. Within the next year, the company expects to roll out new proprietary software called Manager's Desktop, which "empowers managers to do more and HR to do less," says Lovendosk.
"Right now, succession is still fairly tightly held," she explains, describing a process that involves a limited number of people poring over large binders of information compiled by HR. With the new software, "individual managers will be able, on their own, to go in and make changes to their succession plan. You give that many people access," she predicts, "and it's going to change the complexity of the way we do succession." For example, managers may be more likely to decide for themselves whether to inform promising candidates that they're being targeted for bigger things.
Even TRW, which already embraces a do-tell policy, sees its succession process becoming "more transparent" as it relies more on technology. The company is now implementing a new Web-based tool, called the Management Resources Review (MRR), that collects information from selected employees for a variety of planning purposes, including succession.
Before MRR, a manager could change her mind about a candidate's skills and competencies and quietly update her notes or the succession chart. Now such changes can't be entered into the system without both the manager's and the employee's approval. As a result, more employees are becoming aware of succession-planning, says Thiel. "Our bias is to be open rather than closed." And the new system will make TRW more open, "even compared to two or three years earlier," says Thiel. "We pretty much don't have a choice anymore."
Advice for managers
To avoid the pitfalls and capture the benefits of sharing information with high-potential employees, consider the following recommendations, gleaned from the companies in these studies:
Make conversations about employees' career potential part of their annual performance review and development-planning process.
Teach managers how to communicate information regarding high-potential status to their direct reports.
Emphasize that the needs of the business change, often in unpredictable ways, which is why companies review and change their talent plans at least once a year.
Focus on potential rather than promises. Even replacement charts, if shared, should be viewed as hypothetical situations with no guarantee.