According to a report from Becker’s Hospital Review, CEO resignations are at an all-time high in 2022, with 520 leaving their posts from January 1 through the end of April — an 18% increase from the same period in 2021. It’s a sign of the times. Leader resignations across the board are skyrocketing, leaving organizations in flux.
Succession planning is one of the most effective ways any leadership team can prepare for the departure of a CEO or other executive. It mitigates organizational downtime, streamlines the transition process, and shows the existing internal talent that there are opportunities for upward mobility.
Why CEO Succession Planning is Important
Poor succession planning (or not planning at all) will directly affect an organization’s bottom line. A Harvard Business Review report alleges that poor planning regarding the leadership pipeline will inevitably increase executive turnover rates and cost up to $1 trillion per year in the S&P 1500 alone. It goes on to state that the excessive tendency to hire outside leaders rather than promoting from within comes at “three major kinds of costs: underperformance at companies that hire ill-suited external CEOs, the loss of intellectual capital in the C-suites of the organizations that executives leave behind, and for those companies promoting from within, the lower performance of ill-prepared successors.”
Secondly, executive talent is increasingly hard to find, between the aptly-named “Great Resignation” and the pandemic’s exacerbation of critical workforce gaps. Prolonged vacancies in leadership inevitably damage an organization’s bottom line, culture, and morale. It’s never been more critical to have a succession planning process in place.
CEO Succession Planning’s Guiding Principles
Before starting the succession planning process for a CEO, organizations should be mindful of these guiding principles to set themselves up for success.
- CEO and Board Chair Buy-In: The current CEO and Board Chair must be onboard and aligned. They should be aware of rising talent, identify potential successors early on, and monitor their performance.
- Development Plan: Once a potential successor or successors have been identified, they must be developed professionally and prepared for the role. This can be done through sponsorship and mentorship programs, continuing education, and other leadership development programs.
- Role Clarity: Determine the successor’s strengths and weaknesses and clarify the expectations once they ascend to their new position. In some cases, organizations may find a one-to-one replacement isn’t as feasible as once thought, so identifying such gaps and planning role responsibilities ahead of time is crucial.
- Frequent, Direct Communication Early On: Communication and transparency between the current CEO, the Board, and the successor(s) are key throughout the process. The succession plan for the next CEO should begin on the current CEO’s first day. If succession planning is put on the back burner, things can get awkward in the future once it is brought up. If the Board brings it up to the CEO, the CEO may begin to worry about their job security. On the other hand, if the CEO brings it up to the Board, the Board may begin to wonder if there is a flight risk. New developments must be handled with a unified front with a spirit of cooperation and transparency.
Extending Succession Planning
Today, there is a greater appreciation for the value of succession planning for all leadership roles across the organization. In addition to the benefits of creating a more robust, better-prepared leadership bench and facilitating smoother leader transitions, enterprise-wide succession planning is recognized as an essential tool for recruitment and retention. A shared vision is created when leaders and their supervisors communicate regularly about a path for future career advancement. This clearly articulated vision of an individual’s career advancement path creates strong ties to the employer and decreases flight risk of leadership talent.
3 Keys to Enterprise Succession Planning
1. Assessments
The first step to a healthy succession plan is to make a wide array of assessments. This includes any current or anticipated challenges for the next one to five years. Once organizational pain points are recorded, all key stakeholders must come together to determine the core competencies, skills, and institutional knowledge the ideal candidate must possess. Here are a few questions organizations should ask themselves during this phase:
- What roles are needed to support continuity?
- How can we start developing leadership qualities in rising talent?
- Can one person address organizational deficiencies, or will it take a dedicated team?
2. Evaluations
Once the needs of the role are determined, the organization should look inwardly at potential candidates. Leadership should take the time to brainstorm about high-potential candidates — those who possess the core competencies and knowledge. During the talent evaluation process, stakeholders should categorize any skill and competency gaps, be able to determine how to attract the strongest candidates, and begin creating a solid leadership development plan.
3. Leadership Development
The final key to a flourishing succession plan is leadership development. This process is two-fold: preparing the incoming leader and capturing the departing leader’s knowledge.
The best way to develop internal talent and prepare them to step into critical leadership roles is by implementing a sponsorship program. Sponsorship is a method of leadership coaching in which the coach (often an executive) actively participates in the success and development of the protégé. After all, nothing prepares an incoming executive like the current one taking them under their proverbial wing.
Sponsorship programs allow current leaders to advocate for rising talent, provide ample opportunity to create or bolster diversity & inclusion initiatives, and give the protégé a glimpse into the expectations. The protégé, on their own, may even be able to identify organizational pain points or skill gaps that exist under the current leader and begin planning their strategies to address them. This knowledge transfer is crucial in building confidence in the new leader and fostering a collaborative leadership atmosphere.
Kirby Bates Is Your Trusted Partner in Executive Search
With our nationwide network and reputation, our healthcare executive search team has helped clients match lasting exceptional leaders to key positions for over 30 years. We remain a trusted partner for hundreds of organizations across the country because of our high success rate and first-hand knowledge as healthcare and nurse executives. We’ve spent our entire careers in healthcare so we know what it takes to lead organizations forward.
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