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Home Corporate Governance

Does your company have an effective succession plan?

NM PartnersbyNM Partners
2 months ago
in Corporate Governance
Chioma Mordi,

Chioma Mordi, MD/CEO, Society for Corporate Governance Nigeria

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Business continuity is an important concept in the quest to ensure that the organisation remains a going concern. It is defined as a proactive way to ensure mission-critical operations proceed during a disruption. The departure, therefore, whether planned or untimely, of a critical employee or member of the management team counts as a business continuity concern. This by itself sums up the need for a succession plan.  

If this is the case, why is succession planning shrouded in such mystery in many organisations?  

Why, despite its immense benefits, is succession planning either neglected or else obscured? Reports indicate that organisations may be reluctant to engage in succession planning due to a variety of perceived or real barriers, including a lack of priority, understanding, or resources. 

The reality is that individuals do not remain in one organisation in perpetuity. Organisations should, as a result, out of an abundance of caution, put in place a system that aligns with the company’s future growth plans, for identifying and grooming talent for senior positions, and enabling them to assume such roles as they become available. 

The board has the primary responsibility for ensuring the establishment and implementation of a succession plan for both the Board and senior management of the company. This would imply that the board commence discussions around creating a succession plan in line with the strategic vision of the company, ensure the successors are aware and available and re-evaluate the succession plan as the need arises. 

To this end, there are three main approaches to succession planning with distinct characteristics, they are: 

Strategic Leader Development 

This is an ongoing practice based on defining the company’s strategic vision, identifying the leadership and managerial skills necessary to carry out the vision, recruiting and maintaining talented individuals with those skills or the ability to develop them as well as delegating leadership duties to successors.  

 Emergency Succession Planning 

The other approach is emergency succession planning which seeks to prepare an organisation for the unplanned departure of key managers. Appointing deputies or associates to key positions might be a good strategy to accomplish this approach, whereby the deputies are trained or share some of the responsibilities with the key leaders.  

As succession planning can be a sensitive topic, instead of calling the process emergency succession planning, the process can be called “emergency backup plan” or “emergency leadership plan. This might assist in securing the buy-in of key individuals, rather than its perception as a threat to their positions.  

Departure-defined Succession Planning 

The goal of departure-defined succession planning is to build leadership strengths in an organisation so that it can reduce its dependency upon the skills, charisma and relationships of the incumbent, and stand strong without his or her presence. This plan is appropriate when a key person has announced his or her retirement two years ahead of time. 

Every organisation’s plan will be different. Smaller non-profit organisations may not have enough personnel to develop significant bench strength (Rothwell, 2010). Founder-leaders will face a set of challenges that are different from those that confront a third or fourth-generation executive. Nonetheless, succession planning helps organisations in several different ways.  

 As directors and senior managers ponder over the effectiveness of their internal succession plans, we have highlighted key questions which seek to guide corporates in reviewing and preparing their succession plans.  

  • What roles should a succession plan cover?  

A company’s succession plans should in any circumstance cover its most senior executives (e.g., CEO, CCO and CFO) and other executives in a broader range of departments (including those outside of the C-suite) which may be critical to a company’s management.   

Additionally, are there succession plans for directors? 

  • Is there an emergency- as opposed to a long-term – succession plan in place? 

A long-term succession plan developed, especially pre-COVID-19 may not be responsive to the company’s immediate virus-related needs, and the board should be discussing with senior management whether and how to update the company’s succession plans or implement a more flexible emergency plan responsive to the current circumstances. 

  •  Have appropriate successors been identified considering the circumstances, and do they know who they are?
  •  Is the Board prepared to act quickly? 

Companies should have in place formal emergency contact procedures for any potential trigger to a succession plan (e.g., relevant executive reporting symptoms), including a list of who is contacted, when, and who is responsible for initiating such contact (including backups) and up-to-date contact information for senior management and board members. 

Boards should also familiarise themselves with the potential legal ramifications of emergency succession on the business. For example, are there any “key man” provisions tied to senior executives that could trigger liabilities or obligations?  

What is the potential impact of succession on executive employment agreements?   

The purpose of succession planning is to make sure a company always has the right leaders in place should a change happen quickly. By failing to create an orderly plan for succession, the company may not get a second chance if it does not adapt immediately after a key player leaves the company or passes away. Without a well-thought-out succession plan, the organisation’s continuity planning is suspect. 

  

Chioma Mordi is the MD/CEO 

About The Society for Corporate Governance Nigeria 

SCGN is a registered not-for-profit organisation committed to the development of corporate governance best practices in Nigeria. Today, the Society is the foremost institution committed to the development and promotion of corporate governance best practices in Nigeria. cmordi@corpgovnigeria.org 

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Tags: Society for Corporate Governance Nigeria

Comments 1

  1. Gab Fahm says:
    February 9, 2023 at 6:45 am

    Succession planning is not fool proof. It is usually disrupted either by unexpected disengagement by the planned successor or the action by the incumbent to circumvent the process among others. We have seen some organisations where after many years in double digits, the incumbent could not identity and groom a successor. It was a waste. In the days of japa, corporates need to review their succession plan every half year to see if it is still realistic. Doing such reviews once yearly is no longer robust.

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