Clear succession plans needed to reinforce confidence
February 24th, 2010 by ALVIN SOONG
This could be prevented with effective succession and business protection planning. It would be good for HR personnels to realise this as well (see the news article below)
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When the boss dies suddenly… HR experts say clear succession plans needed to reinforce confidence
THE recent unexpected deaths of some relatively young high-profile chief executives have underscored the importance of timely planning for the next crop of bosses, industry experts say.
They acknowledge that corporate succession planning in the event of untimely death is a sensitive topic that is rarely broached, but they say adopting a realistic approach can prove vital.
The latest company to be faced with grief - along with the need to keep running the business - is retailer RSH Holdings, which sells brands such as Zara, Bebe, Mango and Massimo Dutti.
Its group chief executive officer Vinod Kumar Gomber, 59, died last Sunday in Germany, where he was receiving medical treatment.
RSH has said that it expects no disruption to its business as chief operating officer Kesri Kapur has been running operations since 2007. The firm also has a strong management structure and succession planning in place, RSH said.
Other high-profile CEOs to die in the past couple of years include DBS Group Holdings boss Richard Stanley and Mr Robert Chandran of Chemoil Energy.
Managing director Andrea Ross of human resources firm Robert Walters Singapore said that an organisation should, ideally, have groomed a pool of potential leaders able to move into top jobs with only minor disruption to the business.
Any firm which fails to plan for succession at the top will lose time in hunting for a new CEO - a process that may require a regional or even global search.
Mr Kevin Ong, a consulting leader at human resources firm Towers Watson, said that without a succession plan, it might take at least 12 to 18 months to get a new CEO on board. This would comprise a search and selection process, along with the notice period the candidate might need to serve at his current employer.
Ms Ross pointed out the potential heavy cost of the ‘effect on employees’ morale in the time that the CEO’s role is left vacant… or if the company resorts to filling the role externally where the selected candidate has had no prior experience within the organisation’.
Mr Ong added, however, that large companies, especially publicly listed ones, are increasingly expected to lay out a leadership succession planning process. ‘Unexpected management changes at the top of the house tend to increase uncertainty for shareholders, which in turn can negatively impact a company’s stock price.’
A company’s credit rating may also be affected by the quality of the long-term succession plan and the perceived risk associated with any change of personnel.
As a result, the cost of capital may be higher for companies without an effective succession planning process, Mr Ong said. He added that although he has heard of companies with an ‘emergency CEO succession plan’ in place - such as in the case of sudden death - anecdotal data suggests that many do not.
This need, however, might depend on the degree to which the incumbent CEO exerts influence on key decisions, and whether they are group-based in contrast to being driven by a single person.
However, if a transition is not managed well internally, the company may be at risk of losing top performers, particularly those who may feel that they were in the running for the position.
This means that constant communication between management and staff is vital at this point, Ms Ross noted.
Senior vice-president Dhirendra Shantilal of HR firm Kelly Services Asia Pacific said the best succession plans consider not only the loss of the CEO, but also of the few top executives - including the chief financial officer and chief operating officer.
There is a risk that an entire executive team might be lost at the same time.
‘Once developed, these plans should never be made public or discussed beyond the boardroom. Depending on the size and nature of the company, emergency succession plans need to remain flexible enough to change accordingly,’ Mr Shantilal added.
One of Singapore’s biggest companies, DBS, had to find a replacement when Mr Stanley, aged 48, died suddenly of cancer in April last year.
The appointment of Citi veteran Piyush Gupta as CEO came five months later. DBS chairman Koh Boon Hwee was the interim boss, taking on ‘active management oversight’ after Mr Stanley went on medical leave in January after his cancer diagnosis.
Mr Koh had also emphasised DBS’ deep bench strength of management talent during the bank’s annual general meeting last year.
However, the job of finding a replacement can be made more difficult ‘in the case where the impact of an individual alone is iconic and very great - such as Apple’s Steve Jobs - who represents the company and whose role goes beyond the typical function’, Towers Watson’s Mr Ong said.
This is likely illustrated with the death of Mr Chandran, the founder of marine fuels supplier Chemoil. He had been described as ‘a hands-on manager who controls everything’ and was also called the ‘face, heart and soul of the company’.
The Chandran family decided to sell its stake in the firm, with Glencore International - the world’s biggest commodity trader - agreeing to buy it last December.
From Straits Times 22nd Feb 2009
