Warning: Ignore Succession Planning at Your Peril

We’ve all seen it. An executive stays in his job too long. No serious successors have been identified. Close colleagues of the boss occupy the best jobs. Old chums pack the board of directors. New ideas are rejected by the regime. People coming up the ladder get frustrated because their progress is blocked; many leave for better opportunities. Ultimately, corporate growth and performance suffer. So what to do? How to prevent this from happening?

There is no easy solution, either in a for-profit or a not-for-profit organization. One approach is for the board of directors to specify and enforce a retirement age for senior officers. The board should also establish criteria to be used to remove a senior officer for inadequate performance. At the same time, the board must ensure that there are solid succession plans for strong incumbents who can compete for the top jobs.

In three organizations where I worked, the lack of competent succession plans led to bad results when incumbents stayed beyond standard retirement age.

At AIG, led by the hugely capable Maurice “Hank” Greenberg, no people were identified by the board who were fully able to succeed him. When he left, his successor failed to continue Greenberg’s amazing success. The company went into serious decline, the well-publicized government bailout occurred, and AIG is just now regaining some of its luster.

At UICI, formerly a big board listed Texas-based insurance company, the chairman and CEO, Ron Jensen, was killed in a car crash. He was in his 70s and nearing retirement. The board had not identified a successor. The founding family did not have the determination to continue with the business. It was sold and went private.

While living in Mexico City, I joined the board of directors of the Salvation Army, Mexico. The board members were a diverse group and well motivated. But the board chair had been in place for 30 years. Without his approval, no discussions were held and no decisions were made. He was frozen in time, lack of competence and old age. The board was powerless. The organization had assets and good plans, but those plans weren’t executed. After a year, I told the Salvation Army colonel who ran the Mexican operation that all good intentions were for naught until he forced out the chairman. I quit the board out of frustration.

The military has a sound and nuanced process to retire and separate people from active service that can be modified for use in the civilian sector. After annual reviews, lower-level officers must resign where performance is sub-par. Mid-grade career officers with average reviews must retire as soon as they qualify for a minimum pension. Senior officers are limited in their careers by age and years served. Only the president can make an exception. The system forces retirement and permits younger professionals to move up.

Appointed committees in the military make the decisions about who goes, who stays and who gets promoted. Similarly, companies establish committees that focus on performance matters. If your company doesn’t have one, it should.

Entrenched management tends to look inward. It prides itself on incremental success as it may squeeze out waste and concentrate on existing products and markets. Once comfortable in a job, and so long as performance rocks along at an acceptable level, job holders close their eyes and make believe all is well. Guess what? It usually isn’t. Without paying constant attention to the external market, emerging technology, and competing distribution channels, the company ultimately becomes uncompetitive and irrelevant.

Look at the current struggle of Research in Motion, and Palm before it, and Filofax before that. Long-serving management — some too old, some not up to the task — did not step aside and permit new, brilliant engineers and business people to take over. Boards must move these people out.

For those of you in junior and middle management positions and seeking a new job, find out during the interviewing process how top officers are identified and retained, and the process used. I bet if you had applied to be the new CEO of Salvation Army Mexico — if there were such a job — and found out what I described, you would have walked away.

 The gutters are full of failed organizations and their leaders who were too greedy or uncaring about their shareholders, owners, and donors to get off center stage. When a top-ranked tennis player continues to compete when on the slide, only one person is affected. The consequences are far more serious in business.