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Plan Today for an Unexpected Tomorrow

September 1, 1996
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Related Topics: Workforce Planning, Featured Article
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On April 3, a U.S. delegation of business executives led by Commerce Secretary Ron Brown was en route to Dubrovnik, Croatia, when its storm-lashed plane crashed into a hillside killing all aboard. On that plane was Barry Conrad, chairman and chief executive officer of the Barrington Group, a seven-month-old international resort management firm based in Miami. His company had no executive succession plan. "Barry was the brains of the company, and his death was devastating to us," explains Natalie Conrad, who is not only advertising manager of the fledgling company, but also Conrad's daughter. Twenty-four hours after employees confirmed Conrad was on the plane, the company lawyer was named acting president. "We had to name someone to run the company because the company would continue to run," Natalie explains. "People have jobs, projects are under way, the press was calling. We had to put someone in charge." Although the Barrington Group is now involved in a painful search for Conrad's replacement, "it will probably take three or four people to fill his shoes," she says.

Twelve other companies lost high-ranking executives on that plane, including AT&T, Bechtel, Asea Brown & Boveri and Parsons Corp. to name a few. Although larger and more established than the Barrington Group, these companies faced similar leadership issues—namely, how to reassure shareholders that the company's finances won't suffer and how to keep the business running smoothly.

While the plane crash on its own should serve as a wake-up call to businesses that are operating with out-dated or nonexistent executive-succession plans, death and disaster are not the only reasons HR professionals need to be concerned. A whole host of events—organizational restructuring, downsizing, acquisitions and management turnover—are having a profound effect on the way companies fill senior-executive positions. HR professionals have a major role here: They must act as guides and consultants to their organizations as they head into a new era of succession planning. The future of their companies depend on this.

As Corporate America has changed, so must its succession planning.
Despite the vital importance of succession planning, few companies today do it well, according to William J. Rothwell, author of "Effective Succession Planning" ((c) 1994, AMACOM Books, New York, New York). "Succession planning has become very complex in today's ever-changing environment, and most companies don't want to spend the time to do it right." A 1996 survey on succession planning by Chicago-based Foresight Survey Systems International underscores the problem: Only 22% of more than 500 participants responded favorably to the statement, "My organization has a well-developed management succession system." (See "Succession Planning Suffers From Inattention.")

In the old days—say, before 1985—succession plans were nothing more than simple replacement plans. If an executive died or resigned unexpectedly, companies could easily look below that person's name on the organizational chart and come up with a list of potential successors. In the days of structured career ladders, stable workforces and unchanging corporate goals, replacing an executive was relatively easy.

But today, companies are being continually reinvented to stay alive. Not knowing what type of business an organization will be in five years from now makes it impossible to determine who its best leaders will be. Even if executives could determine their potential successors, downsizing makes it impossible to predict whether those employees will still be around in the future.

Add to this the fact that companies are hesitant to do anything implying long-term employment, and you begin to understand why succession planning has become so complex. "Companies that have gone through downsizing tend to eliminate their succession and career-development plans because they don't want to send mixed messages to employees," says Rothwell.

Because of all this, succession planning has evolved into an ongoing process of finding and developing a pool of leaders who can meet both the organization's current and future success needs—regardless of what those needs might be. According to a 1994 Conference Board report on succession planning, the three most important objectives of the succession-planning process today are:

  • Ensuring leadership continuity
  • Identifying gaps in capabilities, future skills and management development processes
  • Maximizing and diversifying the pool of executive candidates.

American Greetings Corp. models modern succession planning.
American Greetings Corp., based in Cleveland, Ohio, has a succession process that exemplifies what more companies should be doing—its strategy meets all three of the Conference Board objectives. As Harvey Levin, senior vice president of HR, explains: "Our succession-planning process is more about executive development about looking at the competencies we need to develop to make people effective in both their future and current jobs."

At American Greetings, a four-person team that includes Levin, the CEO, the president and the staff director of development comprises the executive-development committee. "We don't even call it succession planning anymore," Levin explains. This committee is charged with identifying high-potential candidates for the company's top three levels of management. This includes approximately 125 senior vice presidents, vice presidents and executive directors.

Informally, and on an ongoing basis, each of these officers recommends to the committee four or five lower-level employees who show good leadership potential. The recommendations aren't taken at face value, however. Officers are challenged to provide evidence that the individuals have high potential in the organization. Under the direction of HR, the committee then reviews each individual's set of competencies, determined by multisource assessments and other performance reviews. The employees' competencies are then compared against the competencies HR has determined are necessary for company leaders.

Any weaknesses or gaps are then addressed through developmental tasks created by the committee. For example, if a high-potential employee is shown to lack decisiveness, HR will design a project that forces the employee to develop better decision-making skills. The employee must then give a presentation to the executive-development committee about the results of the special project. "This also helps to increase that person's visibility among top managers," Levin says.

Does the company take into account individual goals? "Yes," Levin says. "We interview every high-potential employee to determine what they like and dislike about their jobs and what their individual goals are." But even if the employee claims to have no interest in advancement, the developmental plan is put into place. "You never know how the person might feel in the future," Levin says. "The lack of ambition could be temporary. For instance, maybe the [employee] has kids in school. Besides, our most important objective is to make these high-potential employees more effective in the jobs they already have."

The talent-pool strategy works on several levels.
The succession-planning approach used by American Greetings provides the kind of flexibility necessary to meet changing business needs. Why? Because instead of naming just one or two potential successors for each executive position, the company is more concerned with developing a pool of qualified leaders. According to Helen Axel, author of the Conference Board report, this is called the "talent-pool" approach to succession planning.

"Because companies don't know what positions will exist in the future, it makes more sense to develop a number of high-potential candidates who can take over a broad range of roles," she says. This not only creates a larger pool of employees who are prepared to step into leadership positions at a moment's notice, but also gives employees a sense there are greater opportunities ahead. "Although companies can't promise lifetime employment anymore, it's still important that they develop employees," Axel says. "Competition for leadership talent is so great that high-potential employees must be given a reason to stick around."

Talent pools also help companies avoid the sticky issue of whether to tell employees they have been designated as potential successors. According to the Conference Board report, although a relatively large number of companies appear willing to allow informal communications with successors about their prospects in an organization, very few think it's a good idea to openly discuss designated succession plans with candidates. C. Richard Coffey, senior vice president of HR at New York City-based Joseph E. Seagram & Sons, argues in the report that discretion is appropriate to avoid disappointments. Because employees who are part of talent pools are being groomed for a variety of leadership positions, not just one or two jobs, it's easy to avoid the issue altogether.

Talent pools based on leadership competencies have one other advantage: They help companies endure, and possibly even thrive, during constant restructuring. For instance, American Greetings recently purchased an Australian company that has $100 million in annual sales. The parent company is in need of an executive who can immediately relocate to Australia and handle such a large enterprise. Because the company constantly is surveying and developing high-potential candidates, the task will be relatively easy. "Jobs may change constantly, but leadership characteristics don't change much," explains Levin.

HR is crucial in the new succession planning.
As American Greetings' process indicates, HR executives have several key roles to play in developing succession plans. Chief among them is providing the methods and tools by which companies can identify, assess and develop high-potential leaders. "HR should be the facilitator, coach and consultant for the succession process," says Dennis Levengood, director of executive development at K-Mart Corp., based in Troy, Michigan. But, he stresses, "the process needs to be owned by line management." In other words, line managers are the ones ultimately responsible for identifying and developing high-potential candidates, using tools provided by HR.

Despite the need for ownership by line management, succession planning represents yet another opportunity for HR executives to become strategic bottom-line partners with management. After all, what's more important, from a human resources standpoint, than ensuring leadership quality and continuity in an organization?

HR professionals should not only advocate succession planning in companies that have neglected such plans, but also lead the process by integrating succession planning with the entire HR strategy. How? Rothwell suggests the following in his book "Effective Succession Planning":

  • Examine existing HR programs such as selection, training, compensation and benefits against succession-planning needs.
  • Ensure managers give specific consideration to the long-term retention and development of high-potential employees.
  • Identify HR practices that could encourage or that presently discourage effective succession planning.
  • Identify any disincentives that exist to dissuade employees from wanting to accept promotions or assume leadership roles.

After thoroughly reviewing HR practices—including compensation, recruitment and performance reviews—Rothwell suggests taking active steps to ensure these practices do not impede, but rather facilitate, long-term efforts to groom internal leadership talent.

As you may have already detected, executive succession planning is really no different than employee development at any other level in the company. Most employees work with their supervisors to determine annual growth objectives and have some idea of the positions they may be groomed for. What makes executive succession planning more challenging is that some upper-level employees think once they've achieved a certain position, development no longer is necessary. "It's important to have a culture in which everybody is encouraged to keep growing—even the vice presidents," says Levin from American Greetings. "Even the members of our executive-development team pursue developmental tasks."

When done right, succession planning is a process, not an event. Succession plans are living documents that take into account unexpected and constantly changing business needs, whether they result from the acquisition of a new company, the retirement of a key vice president, the extension of an existing product line or the death of an executive.

As Barry Conrad's daughter Natalie explains: "After what we've gone through, I recommend that every company take the time to develop a structured succession plan. Those first few weeks after Barry's death were extremely difficult to get through. We never knew what would come flying through the window at us." If any good came out of the crash in Croatia, it's that it underscores the importance of planning ahead. The unexpected can—and does—occur at all companies throughout Corporate America, but organizations that are prepared can rise above it.

Personnel Journal, September 1996, Vol. 75, No. 9, pp. 40-45.

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