Who takes over when the leader goes? Annie Gregory suggests that directors should spend more time growing successors before heading off to grow roses
What happens when the person at the top leaves? Theoretically, the successor slips in like a key in a well-oiled lock, the share price remains stable and the business carries on without missing a beat. The reality is often completely different. When Merrill Lynch boss Stanley O’Neal stepped down last year after an eye-watering $7.8 billion write-down, what did the investment bank do to calm the waters? It announced the name of the board member charged with finding a replacement, thereby laying pitifully bare its complete lack of succession planning and accelerating its reputation’s downward spiral.
Compare this with the situation at Toyota. In September 2007 James Press, president of US operations, left after 37 years to become CEO of Chrysler. This kind of body blow leaves many businesses reeling. Yet, within 24 hours he was replaced by Shigeru Hayakawa, a home-grown 30-year old manager with huge knowledge of the entire corporation. CEO Katsuaki Watanabe is on record as saying that, although Toyota hates to lose people, the company has real management depth and won’t be affected. Companies like Toyota, GE, Pepsico, Honeywell and Proctor & Gamble are often called ‘CEO factories’. They produce more than ultimate leaders: they also produce top class managers and directors in every discipline. Talent spotting is their way of life. Their cupboard is laden with good internal candidates and their stock is constantly topped up through leadership development programmes. The downside is that other companies queue up to poach. The upside is that, even though they inevitably lose some future chiefs, they are still largely shielded from events that flatten lesser organisations.
Any board that refuses to accept and plan for its own mortality is not worth its hefty salary, let alone its bonuses. Yet, according to a study from Harvard Business Review, 60 per cent of large US companies sampled have no CEO succession plans in place. Of course, hiring in new talent is not necessarily a bad thing. Dr Graham Honeyman, chief executive of Sheffield Forgemasters makes the point that all organisations need the stimulus of fresh ideas from outside as long as it is balanced by internal promotions. But this study indicates that grooming the next generation of leadership is not high on the list of corporate priorities. Yet, if companies constantly recruit from outside for high level jobs, they will regularly face periods of dislocation while newcomers get to grips with company culture or, indeed, attempt to superimpose a new one. That is problematic enough when the ship is on an even course. When it is storm-tossed, it could be fatal. And what incentive is there for the best and brightest of the young managers to stay the course when there is little apparent prospect of their reaching the top? Who gets it right?
Nissan has just announced an extra shift at its plant in Sunderland, creating over 800 jobs, to meet booming demand for its small 4×4 Qashqai. Having successfully fought back from previous troubles, its latest figures show net profit up 26.6 per cent on sales up 18.2 per cent. When the auto industry worldwide is in the doldrums and Chrysler and Ford are struggling, what makes Nissan different? Danny Griffiths, HR director of the Sunderland plant, is unequivocal: “It’s all about finding and developing your own giants.” Nissan mines and develops the latent abilities of its employees through a structured process that runs the entire length and depth of the organisation.
Griffiths firmly supports Nissan’s belief that the management team must be the custodian of succession planning, with HR in a supporting rather than leading role. So line managers drive the whole talent management process. Not only do they conduct the downward appraisals, which lead to individual training programmes, but they also identify and put forward high potential candidates to a local career committee. This meets at least once a year to update its succession plan and to evaluate and pass on successful candidates to the next level, the regional career committee. There are two strands to this: a functional career committee, which defines the core positions and technical abilities needed for its own succession plan, defines the necessary career moves of individuals capable of fulfilling it and makes recommendations; and a regional career committee which broadens individual career paths and builds them into a regional succession plan.
High potential people (HPPs) can expect regular moves and changes in responsibilities. Nissan’s CEO Carlos Ghosn touched on this at a lecture given to the Automotive Academy: “We look for the people who are producing the amazing results, making the greatest contributions. Once we identify them, we give them the most difficult and challenging assignments. We think challenging people to a serious commitment attracts rather than repels them. People don’t grow by doing the easy things; they grow by taking on tough assignments and learning from them.”
This may well include periods spent in other Nissan sites or with its partner Renault. There have been over four hundred exchanges of personnel since the alliance was formed and several hundred more people are involved in cross-functional teams. HPPs are under constant assessment for their potential value at corporate level. Griffiths is open about the fact that even the most talented may, for personal or family reasons, not want to make the move to Japan. But those identified as highflyers with global ambitions are passed on to the corporate career committee to see if they fit its own succession plan. Griffiths describes it as a “very dynamic process providing a strong way of managing talent.” There arepitfalls; no-one enjoys letting their best people go and, like any company, there will still be unexpected management changes. But, as Griffiths says, “it just causes you to go back up the [HPP] lists.”
This formal, structured process would clearly be overkill for smaller companies. But the underpinning principles can apply to operations of all sizes. Take Sheffield Forgemasters International (SFIL). While the company has brought in people to build its strength in key areas, investing in the training and development of existing employees is its chief strategy. “I’m very keen to train in all aspects of the company from the shopfloor through to supporting staff on degrees and developing them for promotion,” stresses chief executive Dr Graham Honeyman. “The majority of positions are filled by promoting people from within rather than recruiting from outside.”
Honeyman returned SFIL to profit in just six months when he took over the loss-making company in 2002. After a successful but complex management buy-out led by Honeyman in 2005, the company today is an internationally competitive business, with a £120 million order book. Investment in its 690 employees is at its core. Honeyman is well aware of the risks of assumed immortality: “I’ve got to prepare for the future because I won’t be here for ever. We’ve got a great chairman, the ex-CEO of Corus, on the main board so if anything happened to me, the company would be safe. But the whole strategy eventually is to have an entire layer of strong management.” The company is now divided into three, two of which have their own managing directors now and one that will have in the future. Does that mean Honeyman is trying to clone himself? “You have to be cautious not to do that. In a management team you need differences and whoever takes over, whether from inside or outside, will not only need to understand the business but will also have a passion for it.” He consciously aims for a mix of management styles: “It makes for very interesting board meetings. It’s good to have different views even though it means sometimes I have to referee.”
There is no formal talent spotting procedure but it is, nonetheless, an active process. Interestingly, like Nissan, it’s the line managers who take responsibility for personnel issues and who are also the front line in spotting candidates for growth and promotion. As a relatively new company, SFIL needed to bring in outsiders but “there are more home-grown than there used to be. It’s important to bring in some from outside because they bring a new perspective to the business. A combination of the two is absolutely essential.”
Nonetheless, there is a clear understanding throughout the company that talent and commitment will be recognised, fostered and rewarded at every level. It has just appointed its youngest ever divisional director. Gareth Barker, who is still only 30, joined as an apprentice engineer at the age of 19. Honeyman says you can tell if an apprentice has what it takes within their first three years. He is adamant he never interferes with his supervisors’ management of their teams – “they are big enough to to sort their own people out” – but he will always listen to their recommendations. “If there is someone worth moving, like Gareth, we will also be looking at who is under him to see how they are developing. For someone to reach technical director level at his age is terrific. It makes them even more keen.” He not only thinks it acts as an incentive to the others but it also makes him face the eventual choice of successors with real confidence. “When you see young people running men twice their age, and doing it successfully, you know that you’ve got some extremely strong people to look after the future of the company.”