Succession Planning 101
Why spend years building your business up to see it falter when you bid it a fond farewell? Insider Engage uncovers the basics when it comes to future-proofing your leadership team.
• Don’t delay, start today
• Different firms require different plan frameworks
• Consider how transparent you want to be with plans
• Consider diagonal learning/career development
• Consider external and internal successors
• Do you need to replace the individual, or the role?
• Covid-19 is not an excuse to put off succession planning
“Every company I have ever worked in to date, I have never walked in and seen a good, up-to-date succession plan.”
That’s quite a damning opening statement on the specialty (re)insurance industry, but it’s one that comes from a qualified source: Suneeta Padda.
Padda is managing director of Padda Consulting, a specialist advisory firm that was established to support the insurance market achieve and maintain compliance with UK and international regulatory requirements.
After beginning her career at UK watchdog the Financial Conduct Authority, Padda went on to undertake engagements at a number of the London market’s biggest names, including Howden Broking Group, Amlin UK, XL Catlin and Lloyd’s.
Today, she and her team are often parachuted in to assist with a range of change management programmes, including successful succession planning.
Unsurprisingly, given her focus, Padda’s primary reason for sorting out a succession plan is driven by regulatory requirements. It’s not just a nice-to-have – it’s mandated by the UK watchdogs.
“It was very much at the forefront for the regulators during Covid-19. There was a clear instruction from the regulator, that under your SMF [senior management function] you must have a contingency plan and a contingency plan for your contingency plan. You've got to have a successor, and then another successor, and then what's your plan if everybody got sick with Covid-19? Because the show still goes on,” she says.
“Let’s take a very wild example: someone senior has come back from Italy and there's a board meeting. Two weeks later, one person gets sick. And then the others all follow suit because they were brought into that room. If you were SMF 1 and I was SMF 2, if you got sick I could step into your role. But what would you do if the whole of that SMF population got wiped out?”
Putting a pin in Covid-19’s impact on succession planning for now, it’s important to first understand why succession planning is so poor in this market.
“At a very basic level, to be successful in succession planning, you have to be very deliberate about it and that sounds like a really obvious thing to say, but I think so many businesses haven't done that in the past,” says Richard Dudley, CEO of Aon Risk Solutions' wholesale and specialty broking operation in London. “[They] just assume that somebody else in their team will be ready to take over as and when somebody decides to retire or move on.”
Jo Taylor, managing director at talent management agency Let’s Talk Talent, thinks for some executives, it’s the fear of the project becoming a huge drain on their time that puts some of them off.
“It doesn't have to be a big, unwieldy, six-month process, you can do it really quickly, and you can even do it on a spreadsheet.
“We work with a Premier League football team, and they wanted to look at their CEO minus two. And they're doing on a spreadsheet. We built a form, it’s got algorithms in the back and it outputs your rating, and then you produce a report. It doesn't have to involve investing in platforms and systems and processes,” she says.
Why succession planning is business-critical
According toPew Research Centre findings released in 2010, approximately 10,000 baby boomers will turn 65 every day between 2010 and 2030, which will ultimately place a significant strain on those in senior leadership roles. That’s stark reading for an industry whose leadership is dominated by boomers.
Returning to the UK regulators, a key “why now” is the joint consultation from the PRA and the FCA on operational resilience. The deadline for responses to the proposals has been extended to later this month from the original April deadline, due to Covid-19, but executives should still expect the results to be rolled out next year.
“Next year you have to identify your key functions and your key business areas [as part of this operational resilience focus],” explains Padda. “Part of that ‘key functions’ work will be identifying your key individuals, so it's good to start sending those messages and getting that right from now, because it's going to equip you better for implementation of new regulation coming forward.”
But there are also solid business reasons for not allowing succession planning to fall off your to-do list.
For Taylor, the biggest issue is that without a succession plan, you’re failing to align your people strategy with your business strategy, which poses a risk to your company over the longer term if a number of your high potentials exit the business.
Those exits hit will your business twice – firstly because you then have to spend time thinking about how to replace the individuals, and secondly because you’ve missed the opportunity to benefit from their potential.
“If you don't have a succession plan, you don’t know who [those high potentials] are. And you don't invest in them. Then, culturally, they're not going to feel engaged and they're going to walk away and work for somebody that does invest in in them,” says Taylor.
There are other questions to consider too: how are you effectively de-risking your business in terms ensuring you have the right skill-sets internally? How do you ensure that the skills that you need now are going to be the skills that you need going forward? Do you want to become an employer of choice?
This segues nicely to another oft-reported benefit of succession planning – helping to tackle the industry’s diversity and inclusion issues.
“We have to be much more deliberate about it. That's a realisation that many firms are reaching now,” says Aon’s Dudley.
“If we've come up with a list between us for a role and it’s four white males, we’ll say right, that isn’t going to do it.”
Aon has also recognised that for many of their senior female talent, it’s an issue of confidence.
“Very often we find a lot of our female leaders or female senior practitioners are not as confident about the next move. I think that's fairly common across not just the industry, but probably across a lot of [businesses],” Dudley continues.
“We put a lot more into executive sponsorship for our female leaders and people in other minority groups because what they lack is confidence. We're not perfect at it, but we have at least recognised that it's a challenge.
“We're trying to challenge like-for-like thinking; we're very deliberately looking across the business and not just digging down into the same part of the business for succession. And then we're very deliberate about understanding people’s aspirations and what development we need to do to help get them ready for whatever that next move might be.”
Taylor recalls working with a fintech company that wanted to use succession planning to shake up the profile of their workers.
“They were, as an organisation, 75% male, and they wanted to know who their high potential women were. One of the aims of doing succession planning was that they wanted to invest in those women to boost their broader inclusion.”
Taylor also makes the point that when it comes to investing in career development for your high potentials, 70% of the way that you stretch somebody is learning through the job with coaching.
“That's what succession planning should be. Can you give someone a secondment, could you put somebody from the UK to go and run something in Asia, and build that into their wider career development.”
Diversity doesn’t just allude to opening up the board to those who aren’t pale, male and stale – it’s also about a diversity of experience and new ways of thinking.
“I’m doing a board effectiveness review for a firm at the moment. And it's really interesting to see that [when it comes to] skill sets, they seem to go for the same types of people,” says Padda.
One of the pieces of feedback Padda has given that firm is to look at the “Dear Chair” letter that came out from the PRA in March, which considers a diverse board to be not just one that is diverse in terms of gender and/or ethnicity, but also one that has a broad spectrum of skills.
Padda advises devising a skills matrix that identifies existing skill-sets within the executive team and highlights where there are deficiencies, using that to identify targets for succession plans.
Still not convinced? What about your bottom line then? As Taylor explains: “Ultimately though, you're going to spend less [if you have a succession plan] because you're going to spend less on recruitment because you're going to have fewer people leaving the business, and that frees up money and time to be more strategic.”
Putting the success into succession
So, you’ve decided you need a succession plan. How best to go about it? One of the key questions is when you should set one up, and how often you should review it.
As Taylor explained earlier, there is no one-size-fits-all answer, and no single formula which works for all firms, but as a general rule of thumb, reviewing at least annually would be a good start, and all of our experts agreed you should set one up as soon as you can.
For some, succession plan reviews can be done at the same time as other operational reviews.
“I would suggest that firms review their succession plans in line with their management responsibilities map. You have a regulatory obligation to review management responsibilities on a quarterly basis. So why not have a look at your succession plan at the same time?” suggests Padda.
Another question many executives ponder is how far down the hierarchy planning should go. For some, it’s simply the top tier of management; for others, it should be carried out for anyone who has stayed at the firm for two or three years; and others still advocate an approach which brings in everyone once they’ve done five years, post-graduation. Much depends on the size and make-up of your firm.
At Aon, the process starts with annual and half-yearly reviews at all levels of the company. All employees will have a talent review to assess how they’re performing against their objectives and how they are faring on a wellbeing level. And they will have the opportunity to discuss aspirations for the future.
“The other big element is succession planning and so for someone like me, for example, my boss and I have lined up a number of options for succession planning for my role,” says Dudley.
“I would then do the same thing with my direct reports for people who they've been discussing or [have] recorded on the HR system in terms of potential successors in their role.”
A big element of that planning is to do it without necessarily going public about the outcome of those plans, Dudley explains, as it can backfire. Sometimes it creates expectations that can’t be met, or puts pressure on individuals. But there does need to be transparency on a one-to-one level.
Perhaps most crucially, Aon’s succession framework encourages staff to progress through their career in business diagonals, moving them to new opportunities across the business rather than promoting them straight up their existing vertical.
That can be a challenging conversation to have with the individual, as often a lot of brokers value the fact that they have developed in-depth expertise, experience and relationships in a relatively narrow space.
“I'm always a big believer that many people have skills which are transferable. And if you just slightly retrain people, you can actually get great value for them and they can get great value from a step into a different business rather than the one they've been in already,” argues Dudley.
Padda is a fan of this approach too. Referring to her skills matrix format, she encourages firms to get individuals to identify where there are potential gaps that they can upskill in and expand their value to the firm, and allow them to avoid being pigeon-holed
“You would have some way [for them to say], rather than [just] ‘I’m in compliance’, actually ‘I’m compliance, risk and governance, so I could step in and be a successor for somebody in one of those departments’. You can diversify people's roles where they overlap a little bit,” she says.
“For instance, you might have a deputy compliance officer who starts, one day a week, supporting the risk team. They can then ultimately be considered a good option for compliance or risk.”
This matrix framework can also identify when you need to look outside your firm for the required talent. You may want to consider bringing in external recruiters at this stage, depending on the role.
Another tip is to consider roles and skill-sets, rather than people, when thinking about key staff members leaving. Does their exit open up the opportunity to reorganise the group, or rethink how you tackle a particular business need?
“For every role in the company, if someone leaves we don't always say 'let's just replace them', we ask could we redefine the team or restructure the team. We might actually redefine other people's roles, absorb the leaver’s role somewhere else and get someone else with new skills that make sense. And we try and do that all the way from the bottom of the firm,” says Dudley.
One of the major challenges for succession planning in recent times has been the Covid-19 situation and the subsequent shift to remote working.
“People are almost like treading water at the moment because they are getting through everything on a day-to-day basis,” says Padda. “Things like training, learning and development seem to take a back seat because 9am-5pm, people are on calls or having meetings – they're working much longer to deliver the same as they delivered before.
“But what is suffering is training, development and mentoring. Keeping those things alive is really important.”
Aon’s Dudley is less pessimistic. “I think initially a lot of us were pleasantly surprised at how smoothly the market moved to a remote work environment. A lot of that we can attribute to the investments in electronic trading which has enabled us to trade, but we should also attribute it to the relationships that have already been built up between. Of course, at the same time, it's much more difficult to build new relationships.
“Our abilities to look across the market for succession planning opportunities is probably the only negative. There's less visible activity going on with the firm, or with other firms outside, where we're all involved in person-to-person sessions - it's just harder to maintain the pipeline for that succession planning.”
But Taylor agrees that it’s a subject that has lost focus during the pandemic.
“A lot of that workforce planning, succession planning, talent planning has gone out the window with everyone just focusing on the here and now,” she says.
“But I think you have to make the time – it's not something you can just do on the fly. Succession planning, for me, is at the heart of how you get to know whether your business is at risk.
“I've definitely been encouraging all businesses to not take their foot off the gas, and we've definitely seen that in other industries. I've done about 100 hours of coaching over the last three months through King's College and networks [with] another couple of businesses, and 90% of those conversations have been around succession.”
Other common mistakes
• Don’t only focus on your top brass – it alienates those lower down
• Being too transparent with succession plans can lead to mega-egos
• Being too rigid in your plan can also lead to people feeling pigeon-holed
• Don’t forget to monitor and measure outputs from your plan – how do you measure success?
• Ensure someone takes ownership for the project (and that they have a successor in the wings!)