Why Succession Planning is Essential for Companies with Young Leaders
When you think about companies that have an urgent need for succession planning, you might be picturing an organization with an aging leadership team. That’s not an unreasonable thought – the average age of CEOs has been rising over the last few years, with more and more companies choosing executives aged 50+[i]. Typically, we think only companies in this situation will gain value from immediate succession planning.
However, trends on CEO and executive-level leadership ages shift with industry, company stability, and economic climate. Young leaders are joining boards and executive teams, and companies need to adjust to the realities of young leadership. One of the best ways to prepare for any situation in your organization is to create a succession plan tailored to your needs. Here, we discuss why succession planning is essential for companies with younger leaders, and the benefits a good succession plan can have for your organization.
Succession Planning Allows You to Plan Ahead
Although many CEOs and high level executives are ambitious high-performers, their tenure as a leader tends to be short. Research shows that current average CEO tenure sits at around 8 years[ii], and that average C-suite tenure, including financial, human resources, and marketing officers, comes in at just above 5 years[iii]. This means companies need to be prepared for inevitable turnover on their executive leadership teams.
We’ve seen in previous posts that there is tangible, measureable value of succession planning in that it allows you to be more prepared for the future. Regardless of leader age, it is essential that companies plan for the possibility that their executive leaders could leave on short notice. This is especially salient for young leaders who may wish to explore jobs in other companies or industries in their future. A succession plan protects companies from any negative impacts of sudden leadership loss.
Developing the Rest of Your Workforce
There is a unique challenge to having a young leader or department head – opportunity loss. Direct reports of a young leader may believe there aren’t, and will not be, opportunities to progress or be promoted. It can be difficult for talented, ambitious employees to sustain their efforts if they don’t see opportunities for growth.
Succession planning can aid with this problem in two ways. First, it helps increase your awareness of your staff. By using developmental conversations and reflecting on their likely tenure, you can spot areas of risk. Succession planning allows you to see if high-potentials are stagnating or declining in their performance, indicating their disengagement. In order to retain your high-potentials, you have to first be aware of those who are at risk to leave.
Second, when succession planning is done well, it allows you to provide development opportunities to staff beyond your executive team. You may find it easier to retain motivated employees if you provide them with training courses, opportunities to learn new skills, or other chances for professional development. Further, even if a promotion is not available for experienced staff, you may consider expanding their role, and using the developmental component of succession planning to provide them with new, challenging tasks and responsibilities.
Succession Planning Allows You to Increase Board Confidence
As we noted, most CEOs or executives are generally older. That means your young CEO is bucking the trend. In general, boards are made uncomfortable by uncertainty, and bringing in a new, young executive is definitely a source of uncertainty. You can demonstrate to your board, investors, and other stakeholders that your executive team has been thoughtfully crafted and that you’re appropriately prepared for any risks with a solid succession plan. Harmony between leadership and the board sets your company up for success, and having a formal, documented succession plan can be one tool to foster this harmony.
Develop a Comprehensive Succession Plan for Your Young Leadership Team
At SIGMA, we want to help your company be more effective and proactive with a good succession plan. Our Launch Series will deliver your company a personalized succession plan in just 30 DAYS with only 8 hours of time from your senior leadership team. For more information on our Succession Process, Launch Series, or Succession Planning solutions. For more information about succession planning, get in touch with the team at SIGMA today.
[i] Staley, O. (Sept 11, 2017). How the average age of CEOs and CFOs has changed since 2012. https://qz.com/1074326/how-the-average-age-of-ceos-and-cfos-has-changed-since-2012/
[ii] The Conference Board, Inc. (Oct 21, 2016). CEO succession practices in the S&P 500: 2016 Edition. https://corpgov.law.harvard.edu/2016/10/21/ceo-and-executive-compensation-practices-2016-edition/
[iii] Korn Ferry Institute (Feb 14, 2017). Age and tenure in the C-suite: Korn Ferry Institute study reveals trends by title and industry. https://www.kornferry.com/press/age-and-tenure-in-the-c-suite-korn-ferry-institute-study-reveals-trends-by-title-and-industry