The role of the board and the CEO in ensuring business continuity.

• Author: Conlon, Robert
• Position: SUCCESSION - Chief executive officers

Asked about his succession plan, the CEO of a major U.S. corporation recently responded that he carries in his pocket a paper with the name of his replacement, should he be unable to continue. Though not the most methodical succession plan, this dated and dangerous "hit-by-a-bus" approach is far more common than many CEOs and boards of directors would care to admit.

But succession management--the practice of carefully identifying and selecting talent to succeed incumbents in a company's critical roles--is receiving renewed focus, especially at publicly traded companies. Activist shareholders want to know how the organization will change direction when turnover occurs and institutional investors need to assess the thoroughness of succession management as a criterion for investment decisions.

Moreover, internal stakeholders want to be assured that their leadership is doing more than worst-case disaster planning. Even governmental entities need to know that their investments are protected from a leadership vacuum.

The importance such succession planning is receiving is evidenced by the Connecticut State Treasurer, the principal fiduciary of the $22.7-billion Connecticut Retirement Plans and Trust (CRPTF). CRPTF announced it had filed shareholder proposals at 12 major corporations related to tying CEO pay and renewing a director's board seat to having a satisfactory succession management plan in place.

Planning Not Just for the Top Spot

Effective succession management is much more than simply having a slate of candidates to replace the CEO. It requires ensuring that the organization has the depth and breadth of talent needed to fulfill its most critical objectives.

Today's increased scrutiny on succession management creates a significant opportunity to transform the process into an activity that can create shareholder value. While succession management in most organizations may have evolved beyond a piece of paper in the CEO's pocket, it still needs significant enhancements to become a strategic advantage.

The impact of unplanned succession can be significant from an economic, operational and cultural perspective. In the absence of a real succession plan, a candidate often emerges because of a perception that he or she is viewed favorably, without a rigorous analysis to determine whether his or her strengths align with the demands of a larger role.

Although succession management has typically been used for upper management, a growing number of organizations are finding that it should also be applied to the company's most strategic and critical roles, no matter where they may fall in the hierarchy.

Consider, for example, a materials scientist who has designed the proprietary manufacturing techniques that give a company a significant competitive advantage over its competitors. Or, a customer relationship manager entrusted with an organization's largest accounts. A departure that leaves either of these roles unfilled, or filled by individuals lacking the necessary experience and...