In the 1970s, 8% of S&P 500 CEOs were recruited externally. That number grew to 22% in 2014. Yet, outsiders are almost 7 times more likely to be dismissed within a short tenure than homegrown CEOs. No matter how much a board learns about an outside candidate, executive stakeholders simply have a better understanding of an internal contender’s strengths and weaknesses, especially as they relate to the specifics of the current business landscape and strategic objectives. As a result of the inherent “information misalignment”, the chance of making a mistake is much higher for a CEO hired from outside the company.
Most stakeholders will admit that they know this already. But what they won’t admit is that the expressed need to bring in an outside CEO is evidence that neither the board, the current (or previous) CEO, nor the chief of human resources successfully performed one of their most crucial, shared responsibilities: building a sustainable leadership pipeline that readies executives and potential executives to advance at all levels of the organization.
There is good reason effective succession planning eludes so many otherwise functional companies. Making inferences about future performance, the variance of organizational politics and a tendency to devote limited (if any) focus to assessing “hidden potential” often hinder otherwise valiant efforts. For example, there are several reasons an individual may be nominated to participate in a succession plan, but far too often these individuals are identified because they are socially skilled, confident, and interested in influencing others and moving up the corporate ladder. However, just because an individual is rewarding to deal with, doesn’t mean that the organization should devote resources to his/her development.
When it comes to desired leadership outcomes, emergence does not necessarily equal effectiveness. If beating the competition remains the ultimate goal, an organization’s leadership pipeline needs to be filled with those who can successfully lead high performing teams. Accurately identifying top talent must involve science in the form of objective, relevant, validated data. Despite guidance from the academic and business literatures, some companies still base these important decisions on politically fraught processes, or confound successful emergence with effective leadership. But clarity is not unattainable. According to various studies, successful managers tend to spend their time managing up by networking and politicking, whereas effective managers spend their time managing down by taking care of subordinates and driving team performance. Rarely do the two groups overlap.
What’s more, there is a common misunderstanding amongst most executives that all individuals considered for a succession plan should be able to effectively lead people, as opposed to advancing as a leader of processes or thought (i.e. subject matter expert), for example. Tech companies in the Fortune 100 have pioneered the notion that not everyone makes a great people leader. In addition to the typical “high potential” evaluation models, organizations like Microsoft and Cisco smartly consider other ‘leadership’ skillsets that lend themselves to domains such as operational efficiency or innovation. In other words, insisting on professional people-leadership development for an individual who lacks the interest or compulsion to guide others toward stretch goals only sets up that valued employee for inevitable failure.
Well validated personality assessments give a preview into which path forward is most conducive to an individual’s inherent behavioral patterns and latent interests. Those who have the proclivity to impose structure and the drive to keep things predictable will demonstrate behaviors conducive to process leadership. Those who have the propensity to seek inspirational ideas and who also emphasize the importance of imagination will likely have an easier time in a thought leadership role. And the working styles of those compelled to stay knowledgeably up-to-date as well as demand sound rationales to determine courses of action will be more conducive to data dependent jobs. Having such information available in easy-to-understand terminology can help stakeholders vested in the organizational wellbeing leverage employees’ natural tendencies for more informed and specific succession planning.
Our business landscape continues to shift and evolve at an ever-faster rate. People represent the difference between an organization’s success and failure. The stakes of correctly identifying and developing the next generation of leaders could not be higher. Focusing on specific, differentiating options for advancement early in the careers of valued employees will only serve to benefit the organization. Basing the related evaluations of potential on objective data-driven metrics will help HR overcome the ultimate challenge: keeping the pipeline from entry level all the way to the CEO flush with options for filling vacancies.