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Ph.D., CSP, CDR, US Navy Ret.,
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Are You Planning To Be Replaced?

There comes a time in every successful executive’s life when they need to start thinking about who will replace them when they finally hang up their gloves and enjoy a well-deserved retirement. It may be a daunting thought at first, but with the right preparation, it can be a smooth transition, even if it’s not going to happen for another 5 or 10 years. Here are some considerations to make before choosing the best candidate for the job.

Hire Internally

Research carried out by professors Rakesh Khurana and Nitin Nohria at the Harvard Business School indicates that when a CEO retires, it is best to find an internal replacement. They studied the hiring practices at Fortune 200 companies over a 16-year period and charted the impact on operating returns to measure the companies’ performance.

Their study showed that when companies hired externally to replace a retiring CEO, there was a 6 percent drop in performance. However, when a company hired internally, no statistical significance occurred. This shows that an internal replacement allows a company to maintain its performance.

Define the Criteria

This involves making a list of criteria that candidates can be measured against, which will establish exactly the kind of requirements that are important to fulfill the position in question.

Some of these requirements will be universal for all leadership positions, whereas others will be more specific to the company.

For instance, a legacy entertainment company may need someone who can gather digital properties, form a team that will use algorithms, and make the necessary shifts in both people and resources. In a medical group, the CEO’s role may require a background in coding, Macra, insurance processing, and healthcare legislation. It is best to clarify essential qualities that are needed to do the job from the outset.

Keep an Open Mind

During the selection process, it’s inevitable that the main person choosing a replacement will have a few favorites. This is why it’s important to make a collective decision and involve other team members, or a corporate advisor. They are more likely to be neutral and form an opinion based on the credentials of the contenders, which plays a significant part in getting it right.

Having an outside perspective assessing internal candidates also lends a sense of transparency to the process, ensuring that employees are fairly considered.

Form a Contingency Plan

For many years, companies used scenario planning to develop good business strategies, and this technique can be applied to managerial leadership succession.

In this context, a scenario is a logical description of how the future might look. It is based on educated guesses. A range of possibilities are considered while analyzing the effects on the company. Then we examine how these changes affect the specific skills and experiences the company needs in its core decision makers.

Finally, we consider which aspects of the business model and strategy is expected to remain constant, and then decide who meets all the necessary requirements and has the right skills to carry the company forward.

In the military we have contingency plans for everything.  A managerial leadership contingency plan is a good way to determine who is not just the best fit now, but for the future as well.

Business owners can equip their employees with the skills they need to succeed at work and identify those who have leadership potential. Even if retirement is 3, 5, 10 or even 20 years away, planning ahead improves the likelihood of the replacements being successful.

1 Comment

  1. Kate O'Toole

    I very much believe in promoting from within – it gives others in the company a sense of value. That being said, I have two scenarios that I’ve witnessed that I’d like to share (feel free to use):

    Scenario #1: Succession Planning for President. I witnessed a young man, a top producer no-less, be given the title of President after having nearly ten years of being the top performer. Even though is successes were evident, his leadership skills, or lack there of, were even more so. He was great at selling. Not so great at appealing to his employees’ needs. You could tell the staff was uncomfortable around him. Conversely, the individual who was President before him, he was much more attentive to the staff – walked around when he was in the office and asked about hobbies, families, kids, sports – he took an interest – and people remembered that. The new, young President did not have the time for this. So, even though he was successful in the industry, he was not portrayed that way to his fellow colleagues. Making sure the criteria is met is key.

    Scenario #2: Looking Outside. I’ve also witnessed a company immediately look outside to replace a valued employee. They did not make an effort to look at the talent that was sitting right in from of them. They brought in the outside individual, and you could tell from that moment on that there was tension. From here, so many rumors and gossip started: “Why are they here?” “Why didn’t they look internally?” “What does this mean for us?” As you can imagine, this change (as well as lack of communication), caused a drop in productivity and morale. Over time, some employees started to leave due to this unwanted change, feeling that they were overlooked for a position that they were more than capable of being successful. Look at all options before committing to such an important change.


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