In any organization, HR spends its budget on a number of key areas. Significant, though sometimes unnoticed or unknown, among these is leadership. HR leaders surveyed by Gartner said 23% of HR budgets were spent on leadership investments. And of the training and development budget, an average of 27% is spent on high-potential (HIPO) programs, at an average of USD 3,750 per HIPO each year.
Why is this important? Because leaders, in turn, spend significant time in succession management:
Yet, companies are not all that well-equipped to handle C-suite departures and succession matters. Of 900 C-suite executives surveyed by Gartner, a staggering 42% said their organizations lacked a comprehensive plan to deal with a C-suite leader stepping down, while an even larger 77% admitted to having no internal candidate in a position to take on the newly-vacated role. The crisis is real, and is here!
As if this were not enough, there is also the challenge of low diversity in leadership teams, seen in how their demographics do not reflect those of employees, customers, or populations. Unconsciously-biased succession management is the culprit, with tactical interventions in succession planning the only way to make diverse talent more visible. No wonder more than half of diversity and inclusion (D&I) heads had influencing succession planning among their top priorities.
But what causes leadership turnover? Several factors drive it, such as:
And scarcely can an organization afford to have a weak bench, particularly in leadership. This could lead to an average 34% decline in leader performance. It could also require such roles to be filled by external candidates 21% more often than other organizations, with these candidates being slower to onboard and are more expensive.
Addressing this matter is imperative. In 2018, 18% of the largest 2,500 companies in the world saw CEO turnover, compared with 15% in 2017. Their median tenure is getting shorter – it was a median of five years in end-2017 for S&P 500 companies, compared to six in end-2016.
Succession planning for CEOs and other leadership heads is critical. Good plans bring forth improved attitudes from business partners, customers, employees, and investors. They keep the organization prepared for retirement, financial performance, or other recurring events. And when HR leaders – such as CHROs – partner with board members to develop succession plans, the latter perceive the former to be more effective.
There are many challenges for leadership in this process. Leadership is now more complex, with more geographically-dispersed teams and more stakeholders to consult as well as more people to manage and correspondingly less time available per person. Leadership roles are changing frequently, with a rise in the number and diversity of job responsibilities. And these changing roles require different capabilities for leaders to be successful.
To keep the supply of leadership talent strong, the CHRO must drive the process with a keen eye on the following factors:
A good roadmap to follow would be as given below:
The last word…
Succession planning for the C-suite is crucial for good organizational health and success. When the CHRO drives the process well, companies have good leadership teams driving them to achieve their objectives and performance goals.