The benefits of succession planning and executive development

In a previous post that looked at leadership lessons from Warren Buffet, one of the fundamental lessons was succession planning. The quote we took from the Berkshire Hathaway annual report was, “The primary job of a board of directors is to see that the right people are running the business and to be sure that the next generation of leaders is identified and ready to take over tomorrow.”

That lesson is in clear evidence with this week’s announcement from BHP Billiton regarding the transition of the CEO role from Marius Kloppers to Andrew Mackenzie. Within the announcement, the board chairman stated, “Our succession planning process has served the company well for over a decade. Today’s announcement is a result of that planned and considered process.”

As one of the newspaper headlines stated, it appears to be a transition with little drama, unlike other sudden CEO departures that are announced without a planned successor. In the BHP Billiton case, not only is the successor planned, but the transition itself will occur over a period of time with the outgoing CEO remaining at the company until the beginning of October.

The succession planning process at BHP Billiton is obviously a focus of the board. Chairman, Jac Nasser, in commenting on the replacement of the chief financial officer with an internal candidate earlier in 2012 said, ”This is a good example of our executive development and succession planning process.”

The other interesting thing about this statement is that he refers to development and succession planning processes. In our experience many companies have a succession planning process but then fail to develop the executives and managers so that they can successfully fulfil the roles for which they have been identified.

The advantages of a succession plan linked to leadership development include:

  • Talented employees are more likely to remain if they view the best opportunities for career progression are with their existing employer.
  • When the handover occurs, there are minimal distractions internally and externally.
  • If the successor is internal, they will be familiar with the business and company culture and they will be able to solely focus on developing the skillsets of the new role.

As highlighted in the book the Leadership Pipeline (Charam, Drotter, Noel, 2011), recruiting outside talent for key positions has a low success rate. Reasons include:

  • Cultural mismatches
  • Lack of relationship networks
  • Resentment of the internal candidates
  • Pressure of learning a new management layer at the same time as learning the new company

Of course, not every key position can or should be filled by internal candidates and when outside talent is recruited, the success rate is higher where a leadership development framework is in place. Andrew Mackenzie himself was a new hire at one point when Marius Kloppers recruited him from Rio Tinto.

Do you have your succession and development plans in place for your key positions?