Succession planning is one of the most difficult things to get right in business. Lots of things can go wrong with what seems like on paper to be a straightforward process.
Perhaps the recent example at Olympus, the Japanese company known for its cameras but also a significant player in medical equipment, is an extreme case. Michael Woodford, CEO for 2 weeks, was asked to leave even though he had had 30 years service at the company. Surely 30 years is long enough to get to know someone’s capabilities, potential and cultural fit? As we might expect, there is a lot to be uncovered before we really know what happened over this succession decision.
However, it seems to be an example of a board that espoused change in appointing a new CEO but perhaps were not so ready for change after all.
The disagreement concerns how much Olympus had paid in advisory fees when it took over British medical equipment company Gyrus. On being sacked, Woodford exposed the amount of advisory fees paid to a hard-to-trace Cayman Islands firm which were about 20 per cent of the cost of the deal. Advisory fees are typically no more than 1-2 per cent of the deal cost and even at this level many board directors complain that the advisors charge too much. After a few days, Olympus has now confirmed Woodford’s numbers.
The Olympus events point to major issues with regard to their business practices and how they were reported. But what do we learn about succession planning? One investor participating in a private call with the company after Woodford was fired has told Reuters that the company reported that “Olympus board members had harboured doubts about the CEO before his promotion”. These sorts of claims are easy to make with hindsight but it doesn’t bode well for a succession process.
Any CEO would want to have the full support of the board – this would seem particularly reasonable for a long serving employee of 30 years. The CEO of Swiss Bank, Oswald Gruebel, asked the same from his own board in late September in the wake of their $2.3bn loss due to alleged rogue trading in London.
As I write, the Olympus share price has dropped just over 37 per cent in the 5 days from Michael Woodford’s exit. This shows the cost of poor governance at the top.
So there must be better examples of succession planning in action. One example from this summer would seem to be at Apple Inc, where Steve Jobs had to step down as CEO in August due to his poor health. Until his early death on October 5th, Jobs retained the position of Chairman. The Chief Operating Officer, Tim Cook, was ready to take over and other senior leaders have since been retained. Not all succession circumstances are quite so sad and of course it is early days to say whether the new arrangements will be a success for Apple. At least for the short term, the organisation is stable and ready for new leadership.
So, just why is succession planning so difficult, other than for the obvious reason that it is impossible to know exactly how someone will turn out in a new role? Many bosses find the idea of planning for their own succession particularly difficult. It requires them to think about a time when they’re no longer in the job; this can be scary as it points to the uncertainty of their future. When, as the HR Director, I have asked senior leaders to think about succession I have had a number of responses that show just how hard it can be. For example, one leader didn’t want to do any planning because it would depend on what is wanted in a role and who is available at the time. This approach clearly misses the opportunity to prepare a group of people for a number of potential opportunities. The truth I later found out was that he didn’t want other people’s views being taken into account in a succession planning process that he wanted to keep control of. In other situations, I have found that leaders find it very hard to accept that their direct reports are ready to take over now or in the very near future. Leaders will often declare that their key talent will need 3-5 years more experience before they are ready; even though others in the room would consider them right now.
So what to do, as an HR leader, to manage a sensitive process that can be so critical to the business? Firstly, it is important to find the right forum to deal with the issues. It is better to take the succession discussion up a level in the organisation – the talent development discussion can stay with line managers. Line manager views can be useful input into succession plans but only one of many. In a large organisation, a central viewpoint and process can balance the views of the individual business units. Secondly, keep it a fluid, flexible process. Documentation and databases may be useful but fresh discussions when situations change will keep the thinking and the development of potential successor on the agenda. Thirdly, I’d argue we need to prepare our organisations for change. The lesson from Olympus (is this beginning to sound like the Delphic oracle?) would seem to be that if you want a new leader to create change make sure you are ready for it yourself!