The big picture: Replacing a C-suite executive or high-potential employee can be costly. Yet many organizations’ leadership development and succession programs are hamstrung by inadequacies that can lead to damaging talent loss.
Between the lines: Organizations often don’t adequately communicate advancement pathways and development opportunities to these valuable team members.
Our point of view: By identifying and remediating these shortcomings, organizations can deploy high-impact succession planning actions and ensure they retain the specialized talent needed for top leadership positions to support future business needs.
Mindful of the links between leadership-talent quality and leadership succession and development programs, corporate boards are asking chief human resources officers (CHROs) tough questions about the efficacy of these capabilities. While boards want to know more about succession plans, many rising leaders and other high-potential (HiPo) employees don’t know enough about their own advancement pathways and development opportunities.
Human resources (HR) leaders should move swiftly to close this knowledge gap by identifying and remediating shortcomings that hamstring many succession and development programs, and by considering the adoption of higher-caliber leadership succession and development practices. The most prevalent inadequacies include:
- Communications breakdowns: In some companies, HiPo professionals do not know that they are being groomed for senior vice president (SVP) slots or even C-suite officer opportunities.
- Learning and development deficiencies: Organizations may fail to formulate development activities that deliver meaningful and relevant leadership-preparation experiences. This is a common shortcoming due to the massive changes that workforces have undergone in recent years. The leadership skills and experiences that helped propel current leaders to their positions are not the same competencies that will drive future leadership success. CHROs also should assess the degree to which their leadership-development strategy and activities support and align with long-term business strategy.
- Ambiguous timing: Even when HiPo professionals know that they’ve been tabbed to ascend to higher leadership levels, they may have difficulty getting concrete answers regarding when their next promotion will occur. This uncertainty often arises because current leaders do not know when they will transition out of their roles.
- Misjudgment: The notion that “we can always hire someone externally” when a frustrated rising leader or HiPo professional leaves the organization does not square with a war for talent that is unlikely to de-escalate any time soon, despite shorter-term labor market fluctuations. Demographic realities and the pace of data-driven workforce transformations all but guarantee that the supply of specialized talent needed for top leadership positions will not meet future demand.
These limitations are pervasive: More than half of businesses in Europe do not have a succession plan in place, according to Robert Half’s Boardroom Navigator 2023 research. The main drivers of succession planning shortcomings include limited C-suite bandwidth, insufficient resources and a lack of knowledge and expertise, according to an Association for Talent Development survey.
A prudent way to overcome these obstacles is by deploying the following four high-impact succession planning actions:
- Mitigate flight risk: HiPo employees are more likely to be targeted by other organizations and headhunters and/or to seek better opportunities on their own. To mitigate this flight risk, HR functions should identify HiPo professionals who possess the skills and emotional intelligence needed to support future business needs, both short term and long term. Identifying the next generation of leaders requires three analyses: 1) a deep understanding of future business challenges and opportunities; 2) assessments of the skills and organizational knowledge needed to address those challenges and opportunities; and 3) ongoing evaluations of promising leadership candidates.
- Open the blinds: Scant sunlight shines on most succession plans. In recent years, transparency related to employee compensation has soared; similar strides are needed with regard to succession planning.
- Be transparent on timing: There is often a sound reason why current leaders cannot give their chosen successors a specific promotion date – the current leader’s departure date may hinge on factors beyond their control. In these instances, candid conversations are required: You are my successor, and the company is committed to investing in your future. Although I’m not sure whether I plan to leave in 18 months or three years, we’re going to devise plans for both scenarios while addressing your unique leadership development needs.
- Extend succession planning: Consider extending the reach of succession planning activities further into organizational hierarchies (e.g., to director and manager levels). The ascension of an SVP to a C-suite position triggers a ripple effect of talent management decisions. Having a comprehensive succession plan in place at these junctures helps sustain leadership continuity throughout the enterprise. Additionally, employees on lower rungs of the leadership ladder tend to be younger and often hold different expectations concerning promotion time frames (i.e., faster than older generations) as well as the employee value proposition and leadership expectations. Extending succession planning deeper into the organization also can help make leadership development activities more relevant and meaningful.
As HR leaders bolster succession planning and leadership development capabilities, they can consider implementing more advanced practices, such as the following three:
- Expanding the CEO’s involvement in leadership development activities
- Deploying financial incentives (e.g., bonuses linked to measurable outcomes) to encourage and reward succession planning and leadership development performance and behaviors in the C-suite
- Leveraging alumni networks to foster lifelong relationships with current and future leaders
HR leaders who take these types of actions can generate significant value for their organizations. According to a 2023 white paper by Stanton Chase, an executive search firm, the cost to replace a C-suite executive can be two to four times the position’s salary. This includes both the direct costs of recruiting and hiring a new executive, as well as the indirect costs of lost productivity and morale. These numbers can be higher based on the level of the executive position, the competitiveness of the job market, and the organization’s industry, size and geographic location. This magnitude of cost avoidance is likely to resonate with boards as their scrutiny of succession planning and leadership development programs intensifies.