Succession Planning – Human Resource Online

Who’ll fill the seat?

Failing to plan for life after a CEO can disrupt a company’s growth. Yet many Asian firms still resist putting a succession plan in place. Lee Xieli finds out why.

When South Korea’s richest man Lee Kun-Hee promoted his only son to president of Samsung Electronics late last year, there were murmurs of nepotism. But Lee Jae-Yong has been groomed as the third-generation successor since starting his career in 1991 at the world’s largest maker of computer memory chips and flat-screen televisions. His rise has been partly meteoric. Having been promoted to executive vice president and chief operating officer in December 2009, Lee was given his senior post barely a year later.

“My essential role for the company hasn’t changed [since the promotion], but I know that the expectations have become bigger, so I feel a larger sense of responsibility,” Lee told the Korean Times in January.

Not all successors have had such a smooth transition in taking on the top job, especially in Asian or family-owned firms, where the founder or patriarch still maintains a tight grip on business affairs.

Arthur Yeung, Philips chair professor of human resource management (HRM) and associate dean of China Europe International Business School, says successions at the top level are still a sensitive issue.

In Asia, if the founder of the company is still in his mid 50s, more often than not, there is a hesitation to talk about succession planning. According to Yeung, older Asians tend to think negatively of the subject because they assume that the rest are trying to “get rid” of them.

“Often it’s not because there are no good successors. Instead, it’s tied to the founder’s psychological thinking – the founder cannot let go,” Yeung says. “Many Chinese CEOs are so hung-up on a one-man show, they don’t realise the sustainable success of the company lies beyond their tenure.”

But as a business grows, whether it is based in Asia or the West, identifying and grooming people for the top level has become more formalised. Companies need to take succession planning seriously.

Bill Manfredi, executive vice president for talent management at global advertising agency Wunderman, says an expanding company cannot simply exist on its star players. You need to know who you can count on next.

“When you grow and take on new business, you really need to have a bench of people that you can give greater responsibility to coming up through the organization.”

The natural successor

It took Charles Quek seven years to work his way from a junior employee to his role as the executive director for local construction firm HSL Constructor.

Now in his late 30s, Quek is frank enough to admit he is very likely to be the next managing director (MD) of the company once the incumbent, who is in his 60s, retires. But he is also aware of – and open to the possibility – that a more experienced leader than him could be hired from outside to take over at the company.

In fact, with four other senior partners in the firm, the MD has many candidates to choose from. But it is still a touchy subject, according to Quek.

“We are after all an Asian company. Succession planning is still very much a taboo subject to talk about,” Quek says. “We did briefly touch on it and never specifically went into details for fear that we might be seen as trying to replace the founder.”

Planning for life after the CEO is a much more open affair at PSA International. Global head of human resources and corporate affairs Caroline Lim says succession planning at the port operator’s senior leadership level is an annual cycle. The exercise requires incumbents to submit potential candidates who could succeed them. The list is then reviewed by PSA’s leadership development and compensation committee. The succession plan of the second tier of the senior leadership team will then be reviewed by the group CEO.

“With this initiative, we review every position in our first and second-tier levels, not only the CEO’s position,” Lim says. “Succession planning then feeds into leadership competency development of individuals in order to move them to ‘ready’ mode for the next level.”

Yet Lim says potential leadership candidates are not exclusively appointed from within the company. She says they can come from an external source.

Manfredi concurs that successful companies never discount the possibility that their next natural successor can come from anywhere.

“Most people have a narrow view of what talent is,” Manfredi says.

“My view is talent consists of both internal and external people.”

What Manfredi is trying to say is, as an HR leader, you have to keep asking yourself: “If we had a dream, who would be the people we want in the organization?”

And then start tracking those people from where they are, even if they are behind enemy lines. “When we don’t have anyone right [for this role] and this person in company XYZ could be right for us, we see an opportunity coming up.”

Paying special attention

Wunderman started tracking its senior talent five years ago. From an initial 60 potential leaders, Manfredi’s HR team tracks about 600, including immediate leaders, middle managers and high potential talent – out of 7,000 employees globally.

Together with his chief executive Daniel Morel, Manfredi will spend an hour reviewing candidates’ potential with the MDs of each region once a year.

Senior leaders then plot a readiness chart to identify the ones who could step up “if something happens tomorrow or if someone leaves”. They are further divided into groups who can take over key roles in three years, two years and immediately.

Understanding their strengths and weaknesses in this structured dialogue gives Manfredi a clearer view of the training and international assignments these individuals require to grow further.

It also gives the company a more assured talent assessment in the next three to five years because managers can no longer give vague answers about their direct reports’ capabilities.

No more, “they are great” or “it’s OK”, Manfredi says. “This gives us a foundation of who’s out there.”

The current senior leadership team, comprising the CEO, vice chairman, the CFO and Manfredi, has been in charge of Wunderman for a decade. Their next-in-line have been working together for five years. While the leaders’ longevity has created a common working rhythm and understanding of the organisation and their people’s capabilities, the theory that their direct reports might be disappointed about never moving up because of them was put to Manfredi.

He objects to the theory, insisting no-one is being “blocked” from progressing.

“They can move up because as the organisation grows, we need more senior people even if the senior level has been around five years,” Manfredi says. “The problem we have, instead, is if we keep growing, I get nervous about who is next to come up.”

Usurping the throne

Yet Morel does not plan on leaving just yet although his designated successor is the current president and COO of the company. There are plans to move the COO to Wunderman’s parent company WPP Group in a year or two for further development.

At HSL Constructor, MD Lim Choo Leng remains highly-respected, valued for his wealth of experience in the marine construction industry. Quek understands it will be challenging to take over his post. There have been clashes of opinions between the two men during management meetings.

“You tend to debate strongly when it comes to a certain way of doing things or how you should run the company,” Quek says. “How do we come to terms [with different ideology] under this kind of circumstance?”

While Quek doesn’t necessarily have the solution yet, he agrees it takes time for the older generation to see the benefits of formalised succession planning. Yet he is empowered to exercise his authority within the company as the MD delegates his responsibilities further.

“The problem we face is legitimacy,” Quek says. “If I am not appointed [officially] the next in line, there are certain things I don’t have the legitimate power to do.”

His peers would question his authority. The MD might still have doubts on Quek’s readiness for the role because there is this nagging worry that Quek isn’t similar to the way he runs the company. A management style which is “quite impossible” to emulate because no two leaders can be alike, Quek says.

Yeung says the Asian boss might not use sophisticated systems such as assessment centres or 360-degree feedback, but he will have a steady stream of reports about the future CEO from his informal network within the company.

Even if he acknowledges you as the official next in line, he is prone to change his mind anytime.

“He (Leng) has to take time to realise and accept that we can still be effective even though we are differen,” Quek says.

But both men are not in a hurry to speed up the handover, even though there is an urgency to formalise the process because there is a need to make the pending change “less disruptive”. Yet there isn’t a specific time frame to set the wheels in motion because of “the sensitivity of the issue”.

It can be healthy to have a CEO rule at the helm over a long period, Manfredi says, especially if the company has been successful.

His company has seen a roughly 300% growth, one of the fastest growing agencies when benchmarked against its sister companies in WPP, in the past 10 years under Morel.

“You don’t want CEOs to leave every three or four years.”

Changing of the old guard

Accession to the throne can be fraught with many dangers if a proper heir or a firm time line for the takeover are not set. Professor Yeung says an unexpected loss of the CEO can lead to a power struggle among the senior leadership team and the designated next in line will have insufficient time to prove his worth.

“That person does not have the time to fully establish his power base and credibility inside the company.”

In an Asian company, the founder needs to give the successor a morale boost by removing the peers who might obstruct his appointment or allowing “old-timers” to retire when the heir takes over. It is also wise to have the successor venture into new business opportunities for one or two years as a form of development so they can create their own leadership team and demonstrate their ability to lead.

Yeung says the CEO needs to “strongly endorse” his chosen one’s decisions during the power transition even if they contradict his ideas or employees might revolt against new changes.

But finalising the legitimacy of the successor is not a subject for the leader-in-waiting to raise to the CEO. A neutral party has to be the one who broaches the subject of formalising the succession planning.

“The current CEO needs to go through some soul-searching on what his legacy for the company is. Is it to build an organisation that lasts beyond his tenure?”

Yeung has seen many CEOs’ thoughts “suddenly clicking” into place after they attended coaching programmes or roundtables where they can comfortably discuss issues with peers.

“They realise what they have done so far is good for that [growth] stage, but to move beyond that stage, they have to do something different.”

Another thing HR can do for the CEO is research people the CEO admires as leaders, such as Jack Welch (former CEO of GE). You can find credible articles or best practices related to those companies to let the CEO know why this company is so successful. “You leverage this source of information about the companies they follow closely and you feed him more information to influence them indirectly.”

The handover

The search for National Trades Union Congress (NTUC) labour chief Lim Swee Say’s successor has begun. Over the past four years, Lim has been making a “conscious effort to nurture leaders who have the potential to be the future leaders of the labour movement”.

While it has been a challenging process, it’s important for Lim to train the next generation because many senior leaders will be leaving NTUC once they reach the official retirement age of 62. Leadership renewal has “extra significance” at NTUC because it keeps the organisation growing.

But not all Asian or small organizations are lucky enough to have leaders who are open to grooming their next-inline or formalise succession planning. Sometimes the HR department may even be ignored by the senior leader, Yeung says.

“SMEs don’t have the luxury, time and energy to maintain that kind of sophisticated system. HR is not the key priority, survival is the key priority,” Yeung says.

“Nevertheless, we can still raise awareness and push the focus on HR being a business partner to the CEO and bring a unique value proposition to the organisation.”

Manfredi warns that succession planning isn’t only for the likes of global corporations because small businesses must also start planning if they want to be successful.

“You realise that a start-up company will be [focused] on the business. But when you get to a certain size with several hundred people, the only asset we have is our talent.”

Wise words, but perhaps Asian firms will face a long road of adjustments before they see the benefits of taking succession planning seriously.

On a positive note, Quek is happy with his role at HSL Constructor because it gives him more time to learn the ropes.

“I don’t think the MD position is something I am craving. When is it appropriate to make me the MD-designate? This is a question best left for the MD to answer.”

Media Contact and Enquiries:

Raymond Gan
Marketing and Communications Manager
Mobile: +65 9060 6489
Email: marketing@hsl.com.sg