Investing in Next-Generation Talent Reaps Rewards

There are clear benefits to “homegrown” talent — including lower cost and less turnover — but perhaps the most important reason to invest in up-and-comers is a simple and logical one:  The best managers, those who can make a real difference in corporate performance and are wooed by many employers, are attracted to companies that excel at development.  They seize the opportunity to build their portfolio of skills and experience, whether ultimately to use in a senior position at that company or to pick up and take with them to apply elsewhere.

Moreover, a reliable succession process — with as few surprises as possible — is something for which companies are increasingly rewarded in the marketplace.  It is being demanded by shareholders, required to be reported in the proxy, and is a metric of “good governance” for shareholder proxy services that vote companies up or down as solid investments.

Demonstrate commitment

Any company that wishes to be known — inside and outside — as a development-oriented culture should start at the top.  The board and CEO must make it clear that growing and advancing talent is a priority, and that message should be understood in every corner of the company, particularly with high-potential executives who know their career and their future matter.

It’s easy to repeat platitudes about the importance of leadership and valued employees — as many companies do — but the real priorities quickly become apparent to insiders through the words and actions of those at the top.

Companies that do it right understand that management succession is not an occasional exercise, but muscle that must be flexed regularly and continually strengthened.  Further, leadership planning should be closely linked to the organizational strategy. 

Focus on the critical few

For those who will add the greatest value as leaders, long-term, boards and CEO’s should look beyond the most obvious choices.  The goal is to build the best talent, and many CEO’s get consumed with the “what,” not the “who” and the “how.”

Consider tapping the organization for input on future internal successors. The best may be highly capable and respected by their colleagues, but “hidden” from leadership. And it’s important to engage the organization in identifying promising leaders for another reason.  When you make a leadership change, of course you want the market to respond positively, but you want company insiders to be enthusiastic, too.  That can be a powerful motivator throughout the organization.

To mobilize the critical few who will become the future leadership of the company, the first step is identifying them, but the more important part is engaging them in regular communication about their development progress.  It’s crucial to gauge what the individual envisions for the future, including interest in a plan to prepare him or her for a leadership role. 

Cross-train, maintain flexibility

Where “development” may previously have had a remedial ring to it, those who know they may be tapped for leadership roles are now more likely to view coaching as a signal that they are headed for bigger things and that the organization is investing in their future.

Global leaders today need a wide range of skills and often, because of the sheer speed of change, boards and CEO’s may not know precisely the mix of capabilities and experience required in a successor until fairly close to the transition.

So it’s important not only to ensure that any development gaps are addressed for leading contenders, but also to maintain a range of candidates.  The goal is not to pit one candidate against another like jockeys in a horse race, but to ensure the right CEO for a particular stage of the company’s growth, as well as for a particular industry and global environment.  Let the strategy lead the way, keep options open, and don’t choose a successor until the timing is right.

The board at the center

The board’s role in every phase of the succession and management development process is crucial.

On the most elemental level, while the board doesn’t manage development day-to-day, it should make sure that these topics are regularly on the agenda. The board should identify an immediate, emergency successor — which may change over time — who can step in on a moment’s notice, as well as promising next-generation leaders who will be critical to the future. Most companies that have implemented a rigorous succession process ensure that the board has ample opportunity to get to know future leaders, both in board meetings and in less formal settings.

While CEO succession and passing the baton from one star CEO to another is the sort of news that regularly makes headlines, the less glamorous process — the plain old hard work — that ensures successful transitions gets far less attention.

CEO’s and their boards are finally waking up to the fact CEO succession is not an event, or even a process that exists in isolation, but part of a larger development effort that reaches deep down into the organization.  By focusing on succession planning, boards are executing their most important fiduciary duty: ensuring a steady flow of leadership for their organizations.  How fortunate that doing the right thing for shareholders also helps to burnish the organization’s credentials as a leadership development culture and a magnet for management talent.