Succession planning important to generate growth in business

Test your CEO by examining the quality of his or her potential successors. If there is no pool of potential candidates then send him to the bottom of the class.

We are in a region with an abundance of talent. So much so, if we are to believe the UNDP Report on Arab Human Development, we export almost 25 per cent of our region's graduates. Yet everywhere our young talent is ground down by bureaucracy, and restricted by command and control structures worthy of a medieval empire.

The antiquated reward structures in place have more to do with indentured service than the needs of a modern workforce. Those who have worked their way up the hierarchy are rarely given a shot at the top position.

When a CEO leaves or retires there is often a scramble to call the head-hunters to apply a quick fix by bringing in an outsider. Let us be clear. However good a CEO is, he is a failure if he has not developed the next generation of talent even if he has consistently delivered profits growth.

One of the primary roles of a CEO is to develop the tiers of management below the highest levels. It is not a task to be underestimated. It has much in common with growing a timber forest. You need to plant, nurture, cull and identify the saplings that will grow to become fine trees.

From an HR perspective the CEO needs to ensure that there is a proper development programme in place. The essential elements include: training, job rotation, consistent and ever increasing profit and loss responsibility for those identified as fast track talent.

Wisdom

Then there is the element of wisdom and judgment. One of the worst mistakes that can be made is to promote someone who is a replica of his predecessor. The successor will always fall short if he tries to be the same. Every business era, every cycle needs a new type of manager one who is equipped to lead the business according to the challenges of the age.

Thus the CEO, with his board, needs to plan for the future and the leadership qualities, which will be necessary to assure a bright future, even if that means taking a risk. It means that they need the wisdom and judgment to identify talent, which will not be just more of the same.

Any student of history will tell you that an empire that stops taking risks, that stops renewing itself, stops innovating, is condemned to decay and defeat. The same is true of business. Bold decisions need to be taken when putting together the succession planning.

Why the importance of looking internally? There are two compelling reasons. First, because the internal candidate is a known quantity people know what to expect and trust him. Second, the person knows the culture of the organisation. Culture as Marvin Bower, former CEO of McKinsey & Co, so famously said: Is the "way things get done around here".

Cultural fit is crucial. A star player in one country or company can be a complete failure in another and all because the cultural fit was not there.

I am conscious that by advocating internal succession planning it may seem as if I am putting myself out of a job. So let me address the question of when it is appropriate to bring in an external successor and indeed, appropriate to use an executive search firm.

The appointment of a chief executive coming from the outside can be highly desirable when the organisation has identified that it needs specific bench mark talent i.e. knowledge, experiences and competencies that it does not have internally.

In the case of the Middle East, where competition is often less acute than in the West, there can be a compelling case to bring in someone from a mature market, assuming that he has the personality traits necessary to be effective in the Middle East.

For a family business contemplating an IPO, it makes perfect sense to bring an experienced managing director who has been through this process before.

But it should be clear that the outside CEO is brought in for a defined period of time (three to five years) and that part of his remit is to identify, train and develop successors. Still too much lip service is paid to this idea that the outsider will train a successor. A practical way to achieve this would be to tie a substantial part of the new CEO's bonus to his success in developing a successor(s). No successor then no bonus.

The writer is the managing director of Korn Ferry International in the Middle East.