When Randy Edeker replaced Ric Jurgens as chairman and CEO of Hy-Vee in 2012, Edeker had already worked at the grocery retailer for 30 years and had held positions at every level of the company. When Jurgens announced his retirement plans about six months prior, he specifically nominated Edeker as his successor.
Edeker's rise to the top position at Hy-Vee, which has 240 locations in eight Midwestern states, fit the definition of good succession planning for several reasons. First, he was evidently well-prepared, with decades of experience at multiple levels. Second, he was identified as Jurgens' successor six months in advance, not through a hasty process at the last minute.
Not every company is as well prepared as Hy-Vee was for change at the top. A 2014 Stanford Graduate School of Business study found that 46 percent of companies are not grooming anyone in particular to take over the top position. Only 21 percent of respondents to a 2014 survey by Korn Ferry stated that their company "has a solid pipeline of leadership candidates who we would consider 'ready now.'"
PUTTING IT OFF
Norm Yustin, a consultant with Russell Reynolds Associates, an executive search firm headquartered in New York, agrees: "Our experience is that many, if not most, retailers do not have satisfactory succession plans in place and unfortunately keep putting off the inevitable."
So what exactly is succession planning? It refers to preparing the next leader, or leaders, of a company so that they are ready to step in when the chief executive retires, or sooner if he or she is suddenly incapacitated. Smart succession planning helps ensure that the company continues to operate effectively, and it also helps eliminate needless jockeying for position after the CEO's departure.
So how does succession planning happen? Here is advice from several experts.
Succession planning starts with a review of the company's overall strategy, because the next leader will be called on to carry out strategy. If a retailer plans to expand into new markets, for example, it probably needs a different leader than if it plans to defend market share.
"You have to decide what you are trying to do with your company. And then you ask, 'Who will do it?'" Henman says.
The strategy discussion then naturally leads into a definition of the subsequent leader. What characteristics will the next CEO possess? Does the company culture call for a hard-driver, or a laid-back leader? Is schmoozing with suppliers important, or is quiet, behind-the-scenes leadership preferred?
What the future leader looks like "depends on the company and the challenges, and whether it's public or private," says Patricia Lenkov, president of Agility Executive Search in New York City. "A public company CEO is responsible to shareholders, and all of that, so he or she has to have very strong leadership skills and the ability to think strategically. That person has to be the name and face of the organization. And that person has to have the stamina and wherewithal to take a little beating sometimes—if your ship hits an iceberg, you have to be able to manage that."
The leader of a privately held company has different challenges, of course, and a different set of constituents.
Once the ideal leader is defined, the search for that person can begin.
"Some companies get stuck on succession planning and being able to say they did it, versus focusing on actually having the right successor in the job."
ANALYZE THE TALENT POOL
The next step is examining the potential crop of successors, both inside and outside the organization.
"An overall talent assessment is an important step," Lenkov says. "What does your current talent look like? How do you grow your own talent? When you understand your current talent and their opportunities for growth, you can make a road map from A to B."
In the best-case scenario, a retailer assesses its talent continuously. New hires are branded "high potential" if appropriate, and are given growth opportunities throughout their careers. Even though the odds are slim that any given individual will rise to CEO, at least the retailer has a pipeline of talent flowing.
A natural corollary to continuous assessment with an eye towards succession is improved standards in hiring and promotion, Henman notes. "The advice I give is that at some point you need to make the decision that you will no longer accept 'C' players in key positions," she says. "So you identify the positions in your company that require above-average performers, and then anyone in the chain of that position has to be an 'A' or 'B' person."
Of course, it doesn't always happen that way. Henman says she is often called in to help a company that has not planned well for succession and suddenly needs a thorough talent assessment to identify potential candidates.
"If we're talking about a family-owned grocery, for example, Dad may have stayed around 10 to 15 years longer than anticipated, because he's afraid the kids aren't ready to take over and he hasn't developed any of them to be the next leader," Henman says. "And he probably has some unsettling evidence that none of the kids will be able take over the store. And he hasn't brought in any successors from outside the family. So when I get the phone call, all the kids are mad, maybe Dad is desperate, and now he's in a position to make an urgent decision."
In those gloomy situations Henman jumps in and makes the tough assessment that "Dad" isn't willing to make. "I have to look at everybody. I camp at that company, put everyone under the microscope, and then report back to the owner."
CHOOSE THE LEADER
Hopefully the assessment of talent will reveal the best likely future leader of the company. What next? Get that person ready to lead.
The most common way to prepare future leaders is to expose them to multiple elements of the company, preferably with years-long assignments.
"The most successful transitions are when the current owner says, 'My daughter worked in the warehouse for two years, then accounting for two years, then purchasing for two years,'" says Greg Wank, practice leader of New York-based accounting firm Anchin, Block & Anchin's Food and Beverage Industry Group. "That way the successor is exposed to all aspects of the business."
One thing all the experts agree on is that the succession plan cannot be a static document. It should be updated every time an identified successor leaves or the business strategy changes.
And the plan should not be created just for the sake of itself. It needs to be a functional plan to truly guide the organization through the leadership transition.
"Some companies get stuck on succession planning and being able to say they did it, versus focusing on actually having the right successor in the job," says Kim Villeneuve, CEO of Centerstone Executive Search & Consulting in New York City. "There's a big difference between the two. Eighty percent of companies might have put a good plan together, but only 20 percent have actually picked a good successor."
Six Key Questions
Q: When should succession planning begin?
A: "How soon could the CEO be hit by a bus?" asks Kim Villeneuve, CEO of Centerstone Executive Search & Consulting in New York City. "Then you should start succession planning before he or she hits the street." In other words, if you haven't already started your succession plan, start now.
Q: What's the role of the CEO versus the board of directors in succession planning?
A: Ultimately, it is the board's decision on who the next leader of a company is, but if the current CEO is well-respected, his or her opinion on the matter carries weight, such as in the Hy-Vee case. And the CEO definitely plays a key role in grooming future leaders, if the candidates are internal.
"The CEO is not responsible for spearheading the search, but the CEO is responsible for managing the development of bench depth," Villeneuve says. "You want the CEO to be grooming, but the board manages the overall process."
Q: Should we tell the person we identify that he or she is the next leader of the company?
A: Experts disagree on this. "You should never make a promise," Villeneuve says. "The minute you make a promise, you create a difficult dynamic for yourself." On the other hand, naming the successor gives you the opportunity to groom that person for the role. "It's always tricky because whether you articulate your successor or not, everyone can figure it out in general," says Patricia Lenkov, president of Agility Executive Search in New York City.
Q: What if we determine that several of our current employees are good potential leaders?
A: There are two schools of thought here. You can tell all of the identified potential leaders that they are competing for the top job and create a "horse race"; or you can give all of them various opportunities to show how well they perform and just observe them until one stands out.
"The danger of the horse race is that they may not cooperate with each other," Henman says. "On the other hand, there's nothing wrong with several people improving themselves at the same time." Lenkov warns that if you create the "horse race" atmosphere, those people who are not eventually chosen for the top job may leave.
Q: Should we look outside my company for the successor?
A: Yes, especially if the internal talent assessment fails to identify an obvious successor. But there are pros and cons to bringing in an outsider. "Statistics show us that most successful candidates come from within," Villeneuve says. "If an internal candidate moves into the role and understands the culture of the organization, not having to relearn that is valuable. Conversely, sometimes the only way a turnaround can happen is with an outside candidate. That's why it's important to do a strong analysis and see if the company needs a turnaround or you are just ready for growth."
Larger companies commonly track potential external leaders with the thought that they may need to tap that resource quickly.
"If you already know who outside of your company is interesting, and you have had passive conversations with them and tracked their progress, you can develop a ready list of the top five people you could go after," Villeneuve says. "That doesn't necessarily mean you could land them, but at least you have had some board-level conversations about them…and you could decrease the search time by months."
Q: Does succession planning only involve the CEO?
A: No, other key employees should have an identified successor, experts say. "Strategic organizations are thinking about succession at many levels," Lenkov says. "Think about as a business continuity issue—anybody at any level could depart tomorrow."