Leading Off: Effective succession planning: A leader's guide (2024)

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ESSENTIALS FOR LEADERS AND THOSE THEY LEAD

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Replacing top leaders isn’t always a smooth process for organizations. Many a CEO exit has been marked by power struggles, scandals, and dips in the company’s stock price. Now, as record numbers of employees leave the workplace, companies are hard-pressed to find replacements for any job, let alone leadership roles that require years of coaching and experience. Crafting a succession plan may be the last thing on leaders’ minds as they manage the daily upheavals of the postpandemic era. Yet without one, the company risks going rapidly downhill during a changing of the guard, losing revenue and market share. This week, let’s explore some strategies that make it easier to prepare for both planned and unplanned leadership departures.

AN IDEA

Ensure that your candidates can navigate future trends

In today’s unpredictable environment, leaders at all levels must be prepared to adapt quickly. When evaluating potential successors, consider how swiftly your preferred candidates are likely to respond to trends that the pandemic has accelerated and that will shape the future. Sustainability, for example, is no longer just a nice-to-have: it is as vital to competitive advantage as agility or digital transformation. So is the ability to develop talent and ensure that people have a sense of purpose in their work. Other priorities include speeding up operations and deploying cloud capabilities to advance innovation and productivity. Do your prospects for leadership roles have the mindset to embrace these challenges and come up with creative solutions? The answer to this question can help you separate the best candidates from the rest.

A BIG NUMBER

86

That’s the number of women promoted to manager for every 100 men, according to the latest Women in the Workplace report from McKinsey, in partnership with LeanIn.Org. This “broken rung” in the corporate ladder results in fewer women reaching the leadership level. Both women and minorities continue to be underrepresented on corporate boards. Given the recent exodus of employees and increasing public calls for diversity in the workplace, it’s shortsighted to overlook these sources of leadership talent—whether internal or external—as well as previously untapped candidate pools such as differently abled professionals. And with workplaces becoming more remote, virtual, and flexible, your talent search can now extend across geographical boundaries.

Leading Off: Effective succession planning: A leader's guide (7)

A QUOTE

“It does not do to leave a live dragon out of your calculations, if you live near him.”

Wise words for Bilbo and company in J.R.R. Tolkien’s fantasy classic The Hobbit, and this sage advice applies to anyone undertaking a venture that may hold hidden risks. Many traps lie in wait for companies that do not have a robust succession plan in place. Disability or illness may strike top leaders suddenly, throwing organizations into chaos, exposing critical strategic gaps and endangering their market position. Internal bickering and controversies could ensue if leaders are not transparent about their succession plans and if they do not consider a range of candidates—in age, gender, ethnicity, and background—to fill prominent roles. As such, it’s essential for any succession plan to be legally and ethically watertight.

A SPOTLIGHT INTERVIEW

If you’ve watched the popular TV series Succession, you know the trouble that can break out when a founder prepares to leave the business. Well-crafted succession plans fall apart as family members and outsiders battle for control. But that wasn’t the case at online real-estate marketplace PropertyGuru, whose cofounder Steve Melhuish implemented a meticulous three-step plan to ensure an orderly transition to a new CEO. In the process, he gathered six key succession planning insights, which he shares in an interview with McKinsey. “The candidate profile we developed placed a heavy emphasis on culture, values, and talent development, as well as experience in building fast-growing businesses,” Melhuish says.

HOUSTON, WE HAVE A PROBLEM

Your star protégé has finally made it to a leadership role, but it just isn’t working out. This is a fairly common scenario: McKinsey research shows that between 27 and 46 percent of executive transitions are viewed as failures or disappointments after two years. Newly appointed leaders rarely see value in standard training approaches such as “buddy” networks and orientation programs, but they can take steps in five focus areas to ensure a better transition. To improve the chances of a successful executive transition, consider setting up a formal capability-building program to develop staff for future leadership roles. It also helps if outgoing leaders take an active and structured approach to their last days on the job, leaving things in good shape for their successors.

Lead successfully.
— Edited by Rama Ramaswami, a senior editor in McKinsey’s Stamford office

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Leading Off: Effective succession planning: A leader's guide (2024)

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