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Executive Succession Planning - Taking It to the Board Room

Posted on March 17, 2008

Executive succession planning should be an ongoing Board function. Best practices organizations are moving executive succession planning and leadership development from the human resources department into C-level suites and the Board Room in their pursuit of elevated business continuity planning. This is because the business and financial risks of executive mis-hires and misalignment can be as threatening to the viability of an organization as an operations failure or a major data security breach. Given the challenges faced by hospitals today on many fronts - and because only 30% of hospital executives routinely consider succession planning and take stock of who's on the leadership bench1 - senior management should consider institutionalizing a Board-level function to oversee leadership development and executive succession planning and implementation.

Quantifying the Costs

Using a formula put forth by Bradford D. Smart, Ph.D., in his book, Topgrading: How Leading Companies Win by Hiring, Coaching and Keeping the Best People, I have calculated that the cost of a bad hiring decision ranges from $2.4 million for a $100,000-per-year employee to a staggering $12 million for a $500,000-per-year executive.

Based on my 13 years of executive search experience and completion of more than 225 assignments, I believe these numbers are close to the mark. For discussion sake, let's agree that the numbers are inflated and we will take the numbers down to a mere 25% of the researched amount, which means that you're still looking at a $3 million cost for a bad hiring decision involving a $500,000-per-year executive! Executive mis-hires and poor executive succession planning will cost you.

Million dollar mistakes are costly to your business, shareholders and possibly your personal career. The lack of executive succession planning methodologies allows for mis-hired and misaligned executives to incur costs for their company related to sub-standard customer service, inadequate research, missed deadlines and sales targets, failed marketing campaigns, flawed accounting or investment strategies and so much more. Additionally, there are the up-front costs of recruitment and training, the severance you may have to pay to get an employee to leave and the costs of recruitment, training and ramp-up time for the replacement employee. The absence of executive succession planning spotlights that poor hiring decisions and the lack of a strong bench can be a significant drain to a department's and company's income. With business continuity and shareholder value in mind, Board-level oversight of recruiting, leadership development and executive succession planning will result in better overall human resource allocation and improved competitive positioning.

From Costs to Business Risks

In their article published in the Harvard Business Review, "Growing Talent as If Your Business Depended on It," Jeffrey M. Cohn, Rakesh Khurana, Laura Reeves argue that corporate boards have traditionally underestimated the role of a robust leadership development and executive succession planning system in risk management. They suggest that the steady attrition in talent that occurs in the absence of an effective executive succession planning system leaves companies vulnerable to making poor decisions in any number of commonplace business scenarios such as an acquisition or sharpened competition.

In lieu of the stand-alone, ad-hoc activities used by human resources departments, these experts recommend Board-level direction of smart, integrated, talent development and executive succession planning initiatives that are aligned with strategic priorities. Their ideal organization is one in which HR provides development tools and facilitates their use, senior executives are deeply involved in sourcing and growing talent and business leaders are evaluated on their contributions to the organization-wide talent development and executive succession planning effort.

Hospitals' Particular Vulnerability

According to the 2007 survey by the Association for Healthcare Executives, 32% of hospital CEOs say that their hospitals' approach to CEO succession planning was effective or very effective - which means that a whopping 68% of hospital CEOs acknowledge some concern about processes for identifying and selecting the person who will fill their shoes. Moreover - and no surprise here - only 16% of hospital CEOs said their hospitals' approach to communicating about executive succession planning to hospital staff was effective or very effective.

In recent years hospitals have been taking pages from the corporate marketing handbook. Now it may be time for them to take a closer look at effective corporate approaches to leadership development and executive succession planning. Cohn, Khurana and Reeves point to Tyson Foods, Starbucks and Mellon Financial (now The Bank of New York Mellon) as forward-thinking companies with smart, integrated, talent development and executive succession planning initiatives.

Inside Information

Whether or not executive succession planning gets promoted to the Board Room, senior hospital management would do well to review the work of Harvard Business School professor Joseph Bower, who has studied 1,800 successions across all industries. Bower looked at the results of companies that promote insiders through executive succession planning to senior leadership positions and found that they perform significantly better when measured over more than three years than companies that do not look inside first. By many measures, the stakes for hospitals are high. Hospitals who cast leadership development and executive succession planning will be better positioned for risk management success, increased profitability and shareholder value and operational continuity in the 21st century healthcare environment.

Paul Frankenberg is President, CEO, and Principal in Kraft Search Associates, a retained Executive Search Firm specializing in the recruitment of high-value Executive Leadership throughout the Healthcare Industry. Paul has completed more than 225 Senior Executive and Corporate search assignments during his 12-year career and is known for search process thoroughness, commitment to project success, focus on client business plan achievement and candidate retention rates that are among the highest in the industry. Modern Healthcare magazine has ranked Kraft Search Associates one of the nation's Top 25 Healthcare Executive Search Firms. Clients consist of Fortune 500, Fortune 100 and Fortune 25 businesses, mid-cap growth companies, Private Equity and Leverage Buyout firms and related portfolio companies, turnaround and restructuring firms and entrepreneurial Venture-Capital start-ups.

Paul is a frequent writer, guest speaker and panelist on leadership, executive development, entrepreneurship and recruiting industry topics. Paul can be reached at Kraft Search Associates, LLC. The company's website is at http://www.KraftSearch.com and Paul can be reached by email at Paul@KraftSearch.com or by telephone at 615-782-4276.

Article Source: EzineArticles.com