Succession planning

Building a leadership pipeline

Succession planning is a process and strategy for ensuring the continuity of key management positions within an organisation by identifying and nurturing talented individuals to assume such positions when they become vacant. It is a continuous process of identifying likely substitutes for key positions, assessing their potential to assume such positions and bridging existing talent gaps by developing a program to address any skills deficiencies. This process is key to all businesses, regardless of their shape and size.

Ideally, the succession planning process in organisations is people-focused. It should take into account employee motivations, experiences and emotions while keeping in mind the corporate needs of the organisation and real-world data.

Why succession planning matters?

Succession planning is an essential process in organisations for multiple reasons.

The first is that it prevents loss of institutional memory and ensures knowledge transfer and business continuity in leadership positions and key business functions. It also allows for a more diversified portfolio of leaders due to unbiased review and identification processes. Succession planning creates a stronger organisational culture and allows for higher quality, data-driven decisions on board-composition. Continuously updating succession plans in an organisation makes it more prepared to face disruption and thrive in different conditions. By assessing potential leaders for the succession planning process, skills and capabilities gaps are frequently addressed, enhancing the quality of future leaders.

Succession has also been associated with various financial benefits. Deloitte research shows that businesses that prioritise and invest in management:

  • Are 3 times more likely to innovate
  • Have 37% higher income per employee
  • Are 5 times more likely to anticipate change and disruption
  • Have 9% higher gross margins.

Regulatory perspectives on succession planning

For the financial services industry, succession planning has risen to the fore of the regulatory agenda in recent years. For regulators, succession planning is considered central to the sustainability and continuity of supervised entities. What’s more, the regulatory viewpoint on succession planning has extended beyond the traditional focus on senior executives, to ensuring the adequate transition and continuity of activity within the board of directors.

There are a number of good reasons for this shift in focus, which also makes for good reading for non-regulated businesses. Firstly, as the business environment becomes increasingly complex, dynamic and volatile, so too is the composition of company boards expected to reflect a wider variety of skillsets. Bringing together a more diverse set of skillsets is deemed to enhance the “collective suitability” of company boards. But if each director boasts a specific set of skills, the loss of that individual director could leave a void at board level. This makes good succession planning even more important.

A second important development in international regulation is the growing importance being given to quantitative diversity targets. In October 2022, the EU Council approved a directive that will require publicly listed companies to work towards achieving greater gender representation at board level by 2026 or adjust their selection processes. The target set by the EU Council is a choice between ensuring that at least 40% of non-executive directors, or 33% of the mix of executive and non-executive directors, are composed of members of the underrepresented sex. The UK’s Financial Conduct Authority and the US Securities and Exchange Commission have introduced similar targets.

These regulatory developments all demand a more structured approach to succession planning. To meet these objectives, companies are considering introducing mechanisms such as time limits for review of directorships or automatic rotation, allowing them to seek replacements in a structured manner. Likewise, robust development and training plans have allowed existing directors to oversee key areas of business which were previously outside their immediate know-how.

Succession planning with Deloitte

Our research shows that although 86% of leaders believe succession planning is a priority, only 14% of managers believe they do the exercise well.
If not carried out properly, succession planning can be a challenging task which can have adverse effects. Poorly managed succession planning can cause employee engagement and retention issues, especially if existing leaders perceive the exercise as a threat to their own employment. Some of the challenges that organisations face when carrying out succession planning are:

  1. Establishing assessment criteria
  2. Eliminating bias
  3. Making it worthwhile for those affected by the results
  4. Owning and advocating for the process
  5. Orienting towards the future
  6. Creating short term goals to sustain long term goals
  7. Using appropriate tools to promote transparency and trust, among others.

At Deloitte, our Human Capital team specialises in powering enterprises in an ever-changing world where the future of work demands a human experience and new work outcomes through transformation.

We help businesses carry out succession planning from start to finish. We can help you identify your high potential employees as well as assess their potential and performance against our criteria to determine what each individual’s next step should be. Our process is data-driven to minimize bias, however we validate and calibrate all scores through in-depth discussions with evaluators to keep the process ‘human’.

In addition to providing a complete succession plan, we are also able to provide organisations with insights about their strengths and weaknesses at an organisational level. We can assist with individual development plans and help bridge the identified learning and development gaps.

We will ensure your organisation always has the right leaders in place and even help you assess the ‘bench strength’ (ability to fill vacancies with existing talent) of your organisation to determine if your internal development strategy, external recruitment strategy and employer branding are strong enough.

Together with our Regulatory specialists, we can assist you in managing all facets of board composition, board suitability and underlying succession planning exercises. We can achieve value-adding succession planning by assisting you in developing a skills inventory based on your business strategy and risk profile, envisioning what your board should look like in the months and years to come and planning for the present and the future.

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Adrian Mamo

Adrian Mamo

Senior Manager

Adrian Mamo leads the Human Capital service line at Deloitte Consulting. He brings with him over 18 years of experience in management, human resources, learning and development, and industrial relatio... More

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