Pressures on companies have never been greater – the range and pace of change continues to grow whilst the scope for error shrinks. This volatile, uncertain, complex and ambiguous commercial landscape presents new and evolving challenges for business leaders. Societal expectations are rapidly shifting and differ across cultures, geographies and stakeholders. Organizations and their leaders are required to be accountable, authentic and transparent as never before at the same time as they face growing demands from governments and regulators.
Financial, operational and reputational risks have been joined by cyber-security and sustainability risks – and losing the war for top talent capable of addressing such challenges, while anticipating further challenges, is perhaps the biggest risk of all. Egon Zehnder's consultants assess what this means for CEO succession...
INCREASING SUCCESSION RISKS
David: Recently we interviewed independent chairs and directors and found that most believe that the range of risks the board ultimately must oversee continues to expand. Many see innovation — in products, services and business models — as an issue that cannot be neglected if the company is to avoid becoming a casualty of disruptive innovation. Some of these risks may be poorly understood and, with distance and time becoming less relevant due to the internet and social media, companies and their boards are under huge pressure to function in a world where instantaneous response is becoming the norm. Yet sometimes boards have to address issues which they don’t fully understand or have the time to understand. All of this directly impacts CEO succession planning, which remains a central responsibility for boards, and many directors see this as their most important duty. Planning orderly succession is increasingly complicated, both by unwanted media attention and the need for boards to address both long-term and emergency succession needs. Boards often have a contingency plan for emergency succession, but because longer-term succession planning seems less urgent, they sometimes do not pay sufficient attention to it.
Miranda: The pace and nature of change means that often, boards may not have the luxury of a five year succession plan. And whilst there have always been situations when a board suddenly needs to look outside for succession candidates, the current business environment is forcing boards to focus more on the development of internal candidates. Changing demands on leaders – for instance in the digital sphere – may require fresh skills and capabilities which are in high demand and short supply. So it makes a lot of sense for companies to invest and better equip their high-potential internal candidates.
KNOW YOUR BASELINE
Jill: One of first things we do is help companies identify the gap between the leadership talent they actually have and what they’re going to need – which is what we call ‘knowing your baseline’. Then we seek to quantify this gap and create a development roadmap for potential leaders and succession candidates aligned to business strategy. Increasingly Egon Zehnder also works as an advisor, helping boards to understand their talent gap and to create tailored and measurable development plans, aligned to business strategy, for each of their internal CEO succession candidates. Our consultants work closely alongside internal candidates for a full year, acting as personal advisors on their individual development. This is a new development and, we believe, a really important one because the world is changing so fast that executives have to develop their capabilities both in the roles they have whilst preparing for what might come next.
Andrew: Since a CEO needs to do far more than lead an organization and is frequently tasked with its transformation, the key question when assessing succession candidates is how much potential for growth the individual candidate can still offer and whether he or she has the strength to drive a strategic redirection of the company. Is this person still curious enough absorb new ideas, anticipate the opportunities change could bring and capable of convincing others? And does he or she have the assertiveness and determination to convince the organization to change, even in the face of resistance? We believe these are the key questions boards need to answer when choosing between otherwise comparable succession candidates. Egon Zehnder has developed methodologies allowing individuals to be assessed, measured and compared based around what we refer to as our “root cause” model. Our Potential methodology looks at future capability around key traits, such as determination and curiosity. Now we are also now working in a new area, which we call Identity, to unlock possible obstacles and catalyse their motivation and drive.
TAILORED & INDIVIDUAL CEO DEVELOPMENT
Laurence: In every CEO succession project, it is critical that companies neither over-estimate nor under-estimate the talent they have internally. This is why a robust benchmarking assessment is important and why a personal development programme should be in place to ensure the company is seeing and leveraging the full potential of each internal potential successor. We see it as part of our role to work with our clients to help both the organization and the individual get as ready as they can be.
Our experience with senior leaders' development is that for maximum impact three things are necessary: first a real understanding of and focus on what will make the biggest difference in the context of where they are and what the business needs, we too often see senior leaders working on valuable important improvement goals but not the critical one or two. Secondly, the development interventions need to go deep enough, often people have had similar feedback for years over what they need to be better at, and they have repeatedly and earnestly tried to change their behaviours, without success. Key here is to go deeper into mind-set and identity, as the key to unlock the new behaviours.
We are using a different methodology and partnering with the best, like Harvard Professor Bob Kegan, who developed Immunity to Change, a very practical approach to unlock hidden assumptions that are holding us back, or the Mobius Leadership and their Winning from Within simple and powerful framework, which helps leaders rediscover their forgotten inner resources. The third aspect often missing in senior leader development plans is the critical follow up and practice over several months, so that these new unlocked behaviours are fully embedded into the day to day life of the executive. This role, from assessing and unearthing what will make the biggest difference, through identifying the best interventions and partnering with the best in class, to accompanying the leader for the following six to nine months to ensure that personal change is fully embedded, is what we mean by Development Advisors or Integrators.
Miranda: Developing people at the very top level is a complex process and takes time – which they have very little of. So alongside continuous development with our consultants working as one-to-one development advisers, we’ve created a specific programme, Executive Breakthrough, which is by invitation only for CEO succession candidates. It’s a year long journey which includes a five day Intensive segment. The focus of this is really to work out, with the help of some very intense sessions and input from a very select group of peers, what a candidate’s “best CEO self” looks like and how it differs from what you might call his or her “everyday self”. Centred leadership is critical today, yet we all naturally over and under use certain styles. We joined forces with Mobius to run the programs which bring together the wealth of our expertise and their world class development approach. Some of the sessions are very intense and really focus on someone’s identity, aiming to help them be as good as they can be and perhaps discard some unnecessary self-limiting beliefs. People at a senior level sometimes get stuck. They may see themselves in a certain way and as a result think “I can’t do X because that wouldn’t be authentic” when in fact the barrier may be entirely artificial.
FACE OF THE FUTURE
Jill: Executive Breakthrough is also a very important tool to help develop and extend the capabilities of internal succession candidates who, in a fast changing world where many companies and whole industries are being transformed by digital, may not be seen by the board as the right person to lead the next phase. Internal candidates need to anticipate this and accelerate and extend their leadership experiences because, if they don’t re-invent themselves and anticipate change, they risk being passed over by new talent from outside.
Dom:There’s been a big shift, as companies realise that digital transformation has to happen at their core or be left behind by new entrants – and they’re struggling to work out what this means, in terms of structure and talent. Some are bringing digital entrepreneurs in, perhaps initially as non-executives on the board who could become potential CEO succession candidates, or looking for leaders of new enterprises who could one day become leaders of very substantial businesses. The pace of change is putting huge demands on companies – which has a big impact on succession planning because the right leaders for the future might not even be in the corporate world presently, let alone in the same organization. So this means companies have to fast-track the development of new high potential leaders they recruit from outside as well as of their existing internal candidates. Our role, as development advisers on this process is to identify areas of need for both groups to meet the needs of the new enterprise.
DEMAND FOR TALENTED EXTERNALS
Mary-Caroline: There are some sectors, for instance banking and financial services, which are facing increased regulatory pressures and require a new kind of transformational leadership. After the financial crisis a “fix-it” leader was needed, but now financial services firms require leaders who can not only manage risk controls and costs to keep external stakeholders and regulators happy but can also spot the opportunities in the market to increase value for shareholders in the reality of a heightened compliance environment.
A digital economy is driving enormous change in the industry and banks which can transform themselves to meet new customer demands will achieve a competitive advantage in the marketplace. Boards are likely to demand fresh leadership talent, with an understanding of what this might entail, putting enormous pressure on their succession planning and the need for internal leadership development. It is considered best practice for banks in financial services to start succession planning the day the CEO starts – this is not seen as an unusual occurrence but the norm.
The board should review the pipeline of internal succession candidates and calibrate them with external talent to determine how to best address the gaps internally. It is seen as a big retention tool to invest in the senior high potential performers to help them become best in class leaders. There has been a shortage of strong leadership in the financial services post the financial crisis and therefore investing in grooming and developing the future leaders who will guide the industry into its next phase is critical. CEOs today have to shape cultural values which reflect transparency and integrity to ensure their mission is grounded in what society expects from them.
Sophie: Even in sectors where digital transformation is more advanced, like retail, the speed of change may simply be too fast for succession planning to keep pace. This may lead to candidates being appointed before they are ready, or fully developed for the top role, which in turn carries high risk and pressure for continuing development and support. Once you’ve decided who your next CEO is going to be, their development needs to be accelerated not put on hold. CEOs today have to role model investment in personal development.
MORE THAN THE INDIVIDUAL
Jill: The challenges facing global companies today are so great that investing in the personal development of potential future leaders is a necessity, not an indulgence. By developing skilled and able future leaders, organizations can help to ensure that teams are better led and the often conflicting demands of stakeholders more effectively met. Unfortunately perhaps, many companies remain reluctant to let internal succession candidates know they could be in line for the top job – for fear of losing other high potentials – so development continues to be somewhat non-targeted, and thereby less effective.
Andrew: In today’s and tomorrow’s world the most effective leaders will need to engage, inspire and connect with a wide range of stakeholders across geographies, business divisions and cultural divides. Overall, we see five universal challenges of leadership at the very top level, which need to be addressed in the development of individual succession candidates and, eventually, embedded across the organization.
Imagine these five universal challenges as sides of a pentagon. The first is the overriding need to master complexity – requiring the ability to value and integrate multiple perspectives critical to the company’s success, and re-define its purpose. Second is the ability to orchestrate creativity, namely to create a framework of action allowing the organization to find and implement truly innovative ideas to meet future challenges and, thirdly, to leverage emotion around this, to give the transformational agenda a higher meaning which all employees and stakeholders can buy into. Fourthly the leader must have the ability to anchor this in society, connecting the company’s purpose to external societal values and meaning and finally have the capacity to identify, develop and energise a new generation of future leaders to put the vision into effect. We call this approach Transformational Leadership and see it becoming the bedrock of our work around all aspects of succession and leadership development for the foreseeable future.
If you would like to discuss the above or any related issues with Egon Zehnder consultants please contact us here.
Egon Zehnder's human resources practice covers Chief HR Officers, Chief Talent Officers, and HR Division Generalists, as well as leaders in compensation and benefits, leadership & development, diversity and inclusion, organizational development, resourcing, and shared services. They undertake assignments at international, regional, and national levels across industries.