Succession planning for executive management
The latest hkp/// study shows that companies whether based in Germany or Austria or Switzerland attach the utmost importance on finding the best candidates to fill vacant executive management positions.
hkp.com: Why has now hkp/// carried out an analysis on succession planning among chairpersons of the board?
Laura Hohmann: The interaction of various factors such as the ongoing demographic change and reduction of the time in service will increase the difficulty of finding the right person for critical positions. In the future this may also be a problem when it comes to finding replacements for top management and board positions.
Regine Siepmann: Because of the high adverse economic effects that could result from making the wrong decision when filling a vacant top management position, it makes this very topical in Germany, Austria and in Switzerland.
Laura Hohmann: Against this backdrop, hkp/// conducted a survey of chairpersons of supervisory boards in order to identify how succession planning is conducted. A total of 29 chairs of supervisory boards representing German, Austrian and Swiss companies from different industries and sizes
hkp.com: Before we get into the results of the survey in details, could you explain what does the concept of „succession planning” entail?
Regine Siepmann: The primary purpose of succession planning is to identify the best candidates for a top management position and then to prepare them for it. In order to organize the long-term succession plan companies should not wait for a position to become vacant to look for the best successors. As long-term succession, planning is a risk management tool it is as important to identify short-term as well as long-term successors.
hkp.com: Who is responsible for long-term succession planning?
Laura Hohmann: Under German legislation (German Corporate Govenrance Code), the chairperson of the supervisory board is responsible for long-term succession planning together with the whole board. In our opinion, this collaboration between the chairperson and the board can have certain advantages as the chairperson can retain the overview of the overall process while the board can contribute to the search on the basis of its knowledge of the challenges and unique nature of executive positions.
Regine Siepmann: In Switzerland and in Austria firms are free to decide who should be in charge of this process and this regulatory difference is reflected in our results: in Switzerland the chairperson of the board and the CEO equally share this responsibility; while in Austria legal provisions exist too. However, in Germany, in approximatively 70% of the companies the responsibility lies with the chair of the board.
hkp.com: Besides the rules establishing who should bear the main responsibility, there are no provisions about how the process of long-term succession planning should be designed. How do companies today organize the search for potential successors?
Regine Siepmann: The first question to be answered is, in what time frame successors should be considered. Contrary to the abovementioned recommendation, the majority of the firms mainly focus on identifying candidates for immediate succession and less on designing a long-term succession plan or on the identification of suitable long-term successors.
Laura Hohmann: The second question is what kind of sources can be used for identifying possible successors. The study has shown that in most companies, prior to an immediate replacement, they look both internally and externally for possible successors.
hkp.com: What is the main reason for this approach?
Laura Hohmann: Both internal and external candidates are appealing. On the one hand, internal candidates are already “on board” and can take on the new role within the firm quickly, cost-effectively and at lower risk. On the other hand external candidates might potentially bring new knowledge and specific skills urgently required for the next phase of the company’s development.
hkp.com: Then comes the choice of potential successors. Can you detect a trend with regard to selection methods or used criteria?
Regine Siepmann: As a matter of fact approximatively 70% of the studied companies analyze the candidates’ professional backgrounds and references. Surprisingly, more than half of the firms use external assessments, which is a common method we know from recruiting agencies and processes.
Laura Hohmann: Most of the companies use „managerial experience“ as an important evaluation criterion. Amazingly very few companies look at the fit of the candidates’ experience with the actual situation of the firm or at the fit with the rest of the team.
hkp.com: That seems surprising…
Laura Hohmann: One reason why firms neglect these criteria is that they do not make up part of traditional job descriptions. Nonetheless we strongly recommend to include these two elements when choosing potential candidates.
hkp.com: Thus appropriate successors would be identified and the succession planning process could start?
Regine Siepmann: Normally, yes. However a consistent monitoring of the processes and results represents for us the core of a successful succession plan. Although our study results show that almost all the respondents are satisfied with the succession planning for executive management positions, and in two out of three companies vacant positions are filled with candidates from their succession list. In small firms for around 50% of the cases and in larger companies vacancies can be filled up to 90% with such nominees, yet only two out of three companies consistently monitor the results of their succession planning.
hkp.com: According to your analysis do you think that firms have acknowledged the necessity of succession planning. Where can you see room for improvement?
Laura Hohmann: On the basis of our study results, we advise firms, in addition to the search for immediate potential candidates, to develop processes for the succession planning of executive management positions not only on a short–term but also on long-term time horizon and to consider possible successors not exclusively from the level directly under the executive committee.
Regine Siepmann: In addition to these first points and regarding the process, we recommend a systematic monitoring of the results and processes in order to achieve the succession planning goals. That is, to identify the best successors for executive positions, to inform them and prepare them for their possible new role.
Ms Hohmann, Ms Siepmann, thank you very much for this interview.