CEOs Succession Planning in the Financial Sector, the Challenge

Succession planning isn’t as straightforward as just christening one or more workers as surrogates, or enumerating a list of would-be substitutes. Rather, it is a strategic, planned and cognizant effort to cultivate future leaders who can ensure a business’s sustainability. Arguably the most critical decision a given board makes for a company’s future is electing a CEO. It must also be a standing board agenda item and the board should be kept appraised of development plans so that it assures that the organization’s future leadership needs are met. To everyone’s wonder, in Ethiopia’s financial sector most boards know least, or bother less as to how to choose their next CEOs. They also pay less attention to set plans to groom and develop the next business executives at lower level positions. The failures to cultivate visionary leaders who can realize current and future growth of the industry has partly contributed to the overall underdevelopment of the financial industry. And this is common to other sectors too.

In many cases, a CEO’s removal and whether successors will come from inside or outside of the company is a worrisome task. Experience dictates that in most situations, financial institutions in Ethiopia prefer to bring in CEOs from the outside as opposed to designing and implementing a strong internal succession strategy. They resort to searching for ready-made candidates while the better option is working on a mix of strategy — on-the-job training, intensive coaching, mentoring, and education — to nurture future leadership potential. The darker truth is that replacing CEOs time and again turns out to be obligatory for foggy reasons such as removal, retirement, or death.

The question is why financial institutions don’t have ready-to-go CEOs? Here’s my view. Nurturing future leaders requires a strong governance structure, institutional setups, and a visionary and dedicated board and CEOs, who are willing to design and implement a clear and transparent succession plan with key players named based on the required vision, knowledge, skill, attitude, ethics, integrity, experience, agility and courage to make difficult choices for the company.

Besides, there are no valid criteria triggered by business strategy and future expectations. This critical matter that defines the fate of companies habitually falls into the hands of “Myopic CEOs” who don’t regret abusing their power to kill off the best talents for own self interests.

To make things worse, their sturdy affection for the status quo makes the company less receptive to growing needs. Progressive ideas are not expected from those who got “the chair” by accident or conspiracy. It doesn’t require a third eye to identify these people’s ultimate interest, which is to overshadow internal talent and convince the Board that there are no internal potential and trainable leaders. Their ultimate wish is to create “power distance” and prolong their stay as indispensible power by drying the stem and roots of internal stock. They surreptitiously recognize that nurturing capable leaders amounts to digging their own graves. This ploy seems practicable to serve their aspiration but ultimately costs companies and forces them to recruit leaders from outside sources.

To deal with such problems, identifying and nurturing in-house potential must be the dual task of existing leaders and autonomous board committees. Candidates for the talent pool must be selected in advance based on unambiguous criteria and strategic priorities. As potential successors become real contenders for the role, the focus should be on identifying areas to accelerate growth and close critical gaps. This also helps to control the Machiavellianism and narcissism of CEOs in the work place. The board should stretch its arm throughout the company to spot successors at all levels and limit the power of CEOs who exercise a tyrannical style of management, and instigate a climate of fear in the workplace. Growing and upholding a potential leadership cadre of this quality needs dedication on the part of the board. In-house succession aspirants don’t spring up fully shaped out of the blue. This is an investment with a long pay-back period.

The benefits of having a clear succession plan are numerous. To mention a few, companies which have proper succession plans in place won’t panic when a key position is vacant. Strategic projects commenced by preceding leaders can continue smoothly and sustainably. It also fosters employee engagement and a sense of belongingness. When employees observe ongoing opportunities to develop their skills, work with innovative people, and expand their exposure, they will be motivated to deliver beyond their designated roles.

Bringing leaders from outside of the institution would become unavoidable under circumstances that outgoing CEOs haven’t done their job of cultivating future successors. However, this de-motivates internal staff and clouds their future career development with the Company. Obviously, much existing talent may depart and join competitors, taking with them business secrets, key success factors and strategic documents.

The Bylaws of several businesses state that the principal responsibility of designing and implementing succession plans of top business leaders falls on Board Directors. The Board should, therefore, take the time to cultivate CEOs and secure a smooth power transition. On the other hand, CEOs should also stop seeing themselves as indispensible. Apart from the financial and economic burden it creates on the Company, there are moral issues that come with leaving a company unprepared.

Finally, it is believed that CEO succession planning is the best answer to a leadership crisis; proficient successors are the result of preparation and mentoring years in advance of an intended change to guarantee that they get hold of must-have skills and experiences before they are crowned as CEOs.

6th Year . June 16 2018 . No.62