Success in Succession: Traversing Talent and Succession Risks
By Samantha Beavers
Amidst widespread labor and talent shortages, businesses around the world are in a war for talent. Determined to defend their positions in a crowded marketplace, they’re fighting to secure the best and brightest minds in their industries – and for many, succession-related risks loom large.
In a survey conducted by Protiviti and NC State University, 1,453 board members and C-suite executives identified succession issues as a top five risk for 2022. And, recognizing that these challenges could follow them well into the future, respondents identified it as a top five risk heading into the next decade as well.
The Great Resignation, of course, first sounded the alarm. Whether due to early retirement, epiphany-quitting or new opportunities, droves of employees left their companies – either opting for more attractive alternatives or exiting the workforce altogether. Along with the mass exodus, many companies turned their attention to succession planning.
“A lot of companies began to worry about losing their key leaders and realized that their existing plans for replacing them were inadequate,” explains Mark Beasley, Poole College KPMG Professor of Accounting and director of the college’s Enterprise Risk Management Initiative.
“And this is a lot bigger than companies’ ability to replace leaders in the short-term. The larger concern businesses have is that they won’t be able to access the talent they need to stay competitive in their industries moving forward,” he continues.
Knowing the scope
Even before labor and talent issues came to a head, poor succession planning left the door open for a lot of financial and strategic risks. Vacancies in senior executive positions and ill-fitting or underdeveloped successors could lead to decreased revenue, loss of market share, broken partnerships and gaps in strategic skills and responsibilities.
And according to one study, forced successions for poor-performing CEOs cost companies an average of $1.8 billion in shareholder value – which means that poor planning comes with a hefty price tag.
And that’s just in the C-suite.
Without a well-developed succession plan for other key players, businesses are also vulnerable to numerous operational disruptions. Moreover, organizations that don’t prioritize strong leadership pipelines fail to account for their future needs and position themselves for future success.
Risk down the road
Robust succession planning is thus key for businesses that hope to stay competitive and resilient in an uncertain, quickly-evolving marketplace. But with today’s talent shortages, it’s more challenging than ever – which is how succession-related issues landed a spot in the top five risks for now and a decade out.
“Companies realize that hitting their operational targets really depends on their ability to attract and retain top talent. But with the market tightening so much, they’re not so optimistic,” Beasley says.
One reason for this, he explains, is that the pandemic accelerated the transition to remote positions. Employers are increasingly tapping into talent pools well beyond their regional borders, which has made for some stiff competition. For a lot of companies, it’s been hard to keep up – especially with labor costs increasing.
Also raising the stakes is the rapid increase in big data and Ecommerce.
“The fear is that they won’t have employees with the technological and analytical skills needed to succeed in the digital marketplace,” Beasley explains. “And looking to the future, they’ll need people who can leverage data to identify opportunities and drive innovation if they want to stay competitive.”
Getting a game plan
To minimize their succession risk and help recruit and retain top talent, businesses need to kick it into high gear – recognizing that the immense succession-related challenges can only be overcome by being fiercely proactive.
Before they can get what they need, they need to know precisely what they need. To that end, organizations must exercise foresight and identify the most important capabilities for the future. What skills and experiences are essential for keeping up with an evolving market, driving forward strategic goals and meeting future business needs? And which are preferable, but less vital to the organization’s health, success and stability?
By answering these questions and keeping strategic priorities top of mind, companies can focus their efforts in the right places and prioritize what matters most. Additionally, they can assess what skills current successors have and know what to search for and cultivate.
Tapping into hidden and promising talent
Another important step organizations can take is identifying the emerging leaders under their nose. Some current employees may have what it takes with some additional mentoring, resourcing and professional development. By arming them with the tools and experiences they need to grow, organizations can make great strides in creating a strong leadership pipeline. Further, by investing time into these potential leaders – along with creating a positive company culture – companies may help hold on to their own talent.
Transparency is key. By communicating with potential successors and helping them see how far they could go, businesses can motivate employees while also preventing situations where they begin to doubt their value and look elsewhere.
Companies also do well to strengthen their partnerships with local universities and colleges. By creating opportunities for students to gain hands-on experiences and helping academic programs shape their curriculum to develop in-demand skills, companies can help develop the talent they’re looking for while also getting in front of rising talent.
And along the way, companies can also prioritize their investment in underserved populations in their regions – strengthening their existing diversity, equity and inclusion (DEI) efforts while simultaneously developing talent in their own backyards.