Professional Perspectives

Contingency Succession Planning

Contingency Succession Planning
05 Jan

Isaac H. Todd
Law Clerk at Cravath, Swaine & Moore LLP

Isaac Todd’s essay on the important topic of succession planning is relevant to leaders of both nonprofit and commercial boards. It offers a framework for thinking about succession and describes how succession planning promotes organizational resilience more generally. The work stems from Isaac’s two years as a Kellogg Board Fellow; we are pleased to post it on our website.

“The final test of a leader is that they leave behind them in others the conviction and the will to carry on.” –Walter Lippmann [adapted]

Table of Contents

Introduction: Why Contingency Succession Planning?

Rare is the organization that is truly prepared for an unexpected loss of its senior leadership. In some ways, this is surprising. We prize CEOs for their vision and guidance. We view history as a series of actions taken by past hero-leaders. We recognize the importance of leadership in our organizations, but we do not ensure its continuity. Every day, leaders unexpectedly leave for medical reasons, are fired after revelations of personal or professional misconduct, or quit to pursue other opportunities, often leaving their organizations unprepared and without necessary direction. Despite this risk, most companies and nonprofits lack an adequate contingency succession plan (“CSP”). My research into nonprofit executive succession this year revealed that while nearly all interviewees agreed contingency succession planning is important, organizations face barriers inhibiting development of a formal plan. For example, resource-strapped organizations tend to prioritize activities perceived as more urgent, and the unknown context of a potential leadership transition often paralyzes planning. Moreover, it is uncommon for leaders to both recognize their own critical significance to the organization and have the humility to support a future without themselves at the helm. This article suggests specific best practices for creating a CSP and describes how contingency succession planning can spur professional development and organizational growth more generally. All leaders should conduct contingency succession planning for their unexpected departure. Doing so will strengthen their organization contemporaneously, safeguard their legacy, and protect their organization’s longevity.

Frame Succession Planning to Inspire Confidence

When developing a CSP for the first time, leaders should consider how best to introduce this concept to relevant stakeholders. A planning process aimed at minimizing uncertainty during a future transition should not itself create anxiety for employees. Yet because an effective CSP requires input from stakeholders, questions will inevitably arise about whether the leader plans to leave, who would replace them, and what that means for various individuals personally. Particularly for organizations without transparent human resource practices, this may lead to difficult conversations about hierarchy, professional development, or promotion. That’s a good thing. Contingency succession planning can be a springboard for improving employee training, performance reviews, internal and external communications, crisis management, and the organization’s culture.

The basic point is that contingency succession planning should begin with a clear statement from the board chair or senior executive outlining the purpose and benefits of succession planning and what impacted stakeholders can expect in the process. The statement should affirm current leaders’ commitment to the organization, orient towards long-term strength and stability, emphasize leadership development and organizational growth in tandem with succession planning, and notify stakeholders whose input may be solicited. Leaders have an opportunity to highlight their organization’s values and demonstrate their own learning mindset. Once stakeholders fully understand what contingency succession planning entails, they will have greater confidence in their current and future management teams.

Assess the Organization’s Present Succession Readiness

Contingency succession planning is an opportunity for the organization to reflect on and evaluate its leadership practices across the board—a human capital audit. The narrow goal is to anticipate the organization’s strengths and vulnerabilities in the event of an unexpected senior executive departure (or the departure of any employee who is essential to operations). Are internal candidates prepared to step into a vacancy? Could units operate autonomously during a transition period? What competencies will be lost due to this individual’s departure? Answers to these and other questions will help leaders tailor general best practices to align with the specific needs and characteristics of their organization.

Valuable information in a succession readiness assessment will come from above, below, and at the chief executive level, as well as from outside the organization. The CSP team should interview a variety of board members who are active in governance and executive oversight, and who have experience with executive succession. In addition to garnering diverse, strategic perspectives, director interviews will ensure the CSP is aligned with board expectations. Directors may recommend tighter limits on authority for an interim chief executive or additional reporting requirements during the transition. Planners should gather input about who could step into the senior role with legitimacy and what compensation an acting chief executive should receive. Effective contingency planning involves: (i) making advance decisions about what is known, so once a crisis occurs leaders can focus on what was previously unknowable; and (ii) collecting resources and identifying options to expedite those context-specific decisions.

Employees just below the chief executive will also have valuable insights. These include identifying the critical support they receive from their current boss, which must be preserved through a succession, and revealing any tension or concerns among the management team, which may surface and create discord in the absence of a unifying chief executive. It is also an opportunity to gather feedback from senior employees as to what development they need to be prepared for a temporary or permanent promotion. This exemplifies the broader benefits of a succession readiness assessment. Contingency succession vulnerabilities are often human capital deficiencies that can be remedied. If no internal candidate is prepared to fill a senior executive vacancy, it may indicate needed improvements to employee development practices throughout the organization.

Likely nobody understands the requirements and responsibilities of their job better than the current chief executive. Unfortunately, in the event of an unanticipated succession, this perspective will be absent from the room. A goal of contingency succession planning is to document the chief executive’s thoughts on succession candidates and processes while he or she is available. This is not as easy as it sounds. There are countless decisions and actions the chief takes that are not obvious to others, and stores of information they may take for granted. The planning team must elicit and document the most important information and responsibilities, so these resources are available to the unknown individual who may fill that role.

Finally, although competitors often cannot do so directly, CSP planners should learn from similar organizations that have undergone a recent executive succession. Organizations that serve distinct clients or beneficiaries will likely be willing to discuss challenges they faced and share techniques for overcoming them. Such discussions provide an outside perspective and experience more applicable to the nuances of a specific organization than can be found in general succession planning resources. These nuances may be structural—an arts nonprofit with coequal senior executives (artistic and executive directors) would encounter different considerations than one with a single chief executive—or they may be functional—a company whose CEO departs because of misconduct should respond differently if its clients or customers could have been harmed by the CEO’s actions. CSP teams should attempt to understand the principles underlying specific contingency planning measures so they can craft tailored plans. For instance, splitting the CEO and Board Chairperson roles between two people serves to decentralize leadership and create redundancies that mitigate the effects of an individual departure; however, there are other ways to add redundancy that may work better for a different organization. These examples illustrate why it is important for organizations to conduct their own thorough succession readiness assessment prior to adopting a contingency succession plan.

Update Job Descriptions & Revamp Professional Development

Job descriptions and professional development systems exist in some form in most organizations; however, they are often underutilized tools. An up-to-date and detailed job description is a fundamental component of contingency succession planning. On day one (or earlier), a new chief executive should be able to reference a document that describes in detail their core duties and responsibilities. Vague truisms, such as “ensure the company’s long-term viability,” are unhelpful. If a job description does not become outdated or inaccurate as the organization evolves year-to-year, it probably is not sufficiently detailed. Revising and approving the job description can occur in tandem with board’s annual review of the chief executive. In addition to describing the role, the chief executive and relevant directors should summarize priorities and areas of emphasis, the ideal skillset, education, and experience for the position, the chief’s supervisory and reporting responsibilities, and any unique demands pertinent to the organization. Rather than a list of minimum requirements, a good job description is an aspirational document that articulates the best version of the position and directs the actions and development of the officeholder. The job description acts as a cover letter for the packet of key documents and information that gets handed to an incoming chief executive—including organizational charts, financial reports, contact lists, access codes, signature cards, risk assessments, key contracts, et al.

Chief executive job descriptions are an important tool for boards of directors, whose responsibility it is to appoint and evaluate the person in this top job. Search committees often skip to debating the merits of individual candidates without consensus about the minimum qualifications and ideal attributes for the position. This omission muddies the debate and makes for a less efficient search and appointment process. With a job description that accurately reflects what the organization needs in a leader, it is easy to create a competency matrix to more objectively assess candidates. The characteristics sought in a leader may differ depending on the context of succession. For example, an organization whose chief executive departs amid a budget crisis or scandal may place greater value on accounting, legal, or ethics experience. Yet although the weight assigned to certain competencies may vary, having those competencies identified and described in advance will significantly aid decision-makers.

Finally, comprehensive job descriptions are a useful tool for employees’ professional development. Employees interested in more senior positions should be able to look to that job description to learn what additional skills and experience would qualify them for promotion. There is a misconception that professional development consists solely of costly formal training, often outside the organization, and when that line item is cut, so goes professional development. In fact, most professional development opportunities are internal and simply require prioritization and an investment of time. This is a worthy investment; developing others increases organizational competence, which frees leaders to focus on more ambitious or long-term projects, and readies junior executives to step up in the event of an unanticipated executive departure.

A core element of internal professional development is developmental counseling, which although related, differs from a performance review. Performance reviews are evaluative, backward-looking, annual, and inform promotion, layoff, or compensation decisions; most organizations have them. Developmental counseling is collaborative, forward-looking, frequent, and charts a path to improved performance; it’s an area where many managers could improve. There are often elements of developmental counseling in “performance reviews,” such as goal-setting for the subsequent term. However, these tend to be ineffective. When braced for, or having just received, the results of their formal evaluation, employees are naturally more defensive and likely to minimize weaknesses. This inhibits candid, thoughtful discussions about how to improve: conversations that require both leader and employee engagement. In a performance review, the supervisor tells the employee what the employee could have done to earn a better rating. Professional development, on the other hand, requires the support of leaders, and developmental counseling should include a discussion about what the employee needs from their supervisor to achieve their performance goals. Such support may include more critical or affirmational feedback, greater autonomy or responsibility, or exposure to new functional areas through broadening assignments, rotations, shadowing, or special projects. These are all forms of professional development that will prepare internal candidates for more senior positions. Developmental counseling should occur every one-to-three months. This period provides sufficient time to make progress on goals, but detailed feedback is frequent enough to be relevant, remain front of mind, and correct course prior to derailment.

Unexpected leadership succession requires organizations and individuals to adapt. Those that train employees to operate above their paygrade and outside their function are most likely to succeed in transitioning smoothly through such events. Comprehensive contingency succession planning assesses professional development practices throughout the organization, recommends improvements to human resource management, and trains managers to develop their teams.

Designate Decision-Makers & Processes

An inherent challenge when developing a CSP, and in contingency planning generally, is differentiating between aspects that can be planned for in sufficient detail to be useful, and those that are context-specific and cannot be efficiently considered ahead of time. A technique to overcome this challenge is to imagine three concrete scenarios that all would call for implementation of the CSP, but that differ significantly. These scenarios, which can be invented or drawn from past successions, take planning out of the abstract and narrow possibilities into a more manageable universe. This concreteness facilitates detailed planning. The aspects of the three plans that are consistent across scenarios are written into the general contingency plan, while decisions about those aspects that differ are deferred until the plan is needed.

For a CSP, the decision-makers and the decision-making processes can, in large part, be determined in advance. The CSP should identify a contingency succession committee that is small enough to respond quickly, but is comprised of sufficiently diverse expertise to make informed decisions. This committee will likely consist primarily of directors from the organization’s board, and include the board chair, finance and governance committee chairs, and potentially outside counsel or other context-specific appointments. It should designate committee leadership, suggest a timeline and manner of meeting, and provide a checklist of considerations for the committee’s reference. The CSP can outline criteria for bringing in the entire board, outside advisors, or senior executives. It may describe the committee’s executive oversight responsibilities and impose reporting requirements for the interim management team. The primary objective of this section of the CSP is to identify who will lead the response to an unexpected chief executive departure and to provide a step-by-step guide for the inevitable meetings and decisions that immediately follow such an event.

It is important to note that the committee retains discretion over succession during implementation of the CSP. The idea is that designated leaders walk through the plan and implement each step as relevant and appropriate, but deviate when there is a better path. The CSP is a tool to inform and expedite the committee’s response, not a restriction on its autonomy.

Identify Potential Replacements

Certain types of organizations require formal, transparent hierarchies of succession; first responders and military units cannot afford to be without designated leadership for any length of time. Most companies and nonprofits, however, can operate for a short period without a senior executive, providing the succession committee time to meet and appoint interim leadership. Despite this buffer period, it is helpful to have considered potential chief executive replacements as part of the CSP.

Some organizations will simply choose to appoint an executive vice-president or deputy chief executive who will automatically take the helm in the chief’s absence. This formula provides the benefit of certainty; everyone in the organization knows who will be in charge in the event of a contingency succession. This certainty also encourages preparation by, and training of, the successor, increasing the probability of their success. However, there are drawbacks to this model. Designating a successor creates a superior among peers that may alienate other executives and cause their departure. In organizations too small for a distinct deputy chief executive role, where such a person would wear another functional hat, designating a successor in advance may wed the organization to an interim-chief executive who does not have the best skillset for a particular circumstance of succession. And once promoted to interim chief, it may be difficult for that person to return to their subordinate role if the board chooses not to make them permanent chief executive.

In cases where these latter considerations prevail, CSP planners should still compile a shortlist of potential interim chief executives as a resource for the succession committee. This list would be confidential, with access restricted to senior board members involved in contingency planning or appointed to the succession committee. It should contain known internal, and potentially external, candidates and outline the basic strengths and weaknesses of each individual. Again, the goal is not to limit the succession committee to these candidates in the event of succession, but rather to provide a resource so the committee does not begin the appointment process at square one. Consideration of potential replacements will also encourage directors to get to know the executive team. As part of their professional development, senior executives should present to, and interact with, the board regularly. Doing so will familiarize directors with executives’ competence, increasing their legitimacy and easing the transition into the chief executive role, should they be selected for interim or permanent promotion.

Create a Communications Plan

When navigating any transition or crisis, effective communication with stakeholders is critical to an organization’s ability to adapt and thrive (or simply survive). Events can proceed rapidly, and leaders planning for contingency succession should have a thorough communications plan included in their CSP. It should identify who needs to be informed of succession, how to best communicate with them, and what messaging the communications should emphasize.

Before it is needed, leaders should discuss contingency succession planning with their board and staff. Simply knowing a CSP exists will instill confidence in these stakeholders that the management team will be able to competently navigate an unanticipated succession, that the new leader will be adequately prepared to take over, and that the current management team is preparing for potential challenges more generally. As noted above, these early communications should be part of a wider conversation about professional and leadership development in the organization.

In the event the CSP is implemented, organizations will have a variety of stakeholders interested in the process, outcome, and effects of succession. Step one is knowing who these stakeholders are: directors, staff, donors, investors, customers, suppliers, partners, government officials, the media, and the wider community may all require notification and information about the succession process. In what order, from whom, and in what form the communications occur can largely be determined in advance. Internally, a communications tree likely exists based on the structure of the organization. However, flat organizations may wish to assign call lists to more rapidly disseminate information. In addition, a formal statement should come directly from the board chair, who is ultimately responsible for CEO appointment and oversight. CSP planners should consider who needs to be notified in person or over the phone, and for which groups an email notification is sufficient. There may need to be an initial electronic notification, followed by in-person meetings with management to discuss the circumstances of succession more fully. In small organizations where the chief executive has significant relationships throughout the organization, succession may be extremely emotional, especially if illness or misconduct is the cause; such cases may call for a more intimate level of communication. With large or highly visible organizations, stakeholders may experience considerable outside pressure for information or action; here, stakeholders likely need concrete guidance to navigate the transition. Understanding these nuances and how they impact an effective response to contingency succession is critical when creating a CSP.

When succession is unexpected, and particularly when controversial or inappropriate conduct triggers succession, stakeholders will expect an immediate statement on the issue, well before all information is known or decisions are made. Since details will be necessarily sparse, early messaging should focus on the organization’s values; and because values are broadly applicable, sample messaging can be drafted and included in the CSP. Every organization should have and know its core values. However, certain ones may be emphasized during a transition and others added. Generally, leaders should communicate a considered and deliberate plan for transitioning through the change in executive leadership, and should emphasize the organization’s commitment to its mission, organizational and financial stability, control and confidence from the board and management, transparency with stakeholders, and an outlook that is optimistic, yet appropriately respectful and sensitive to the circumstance. This language can be drafted ahead of time, then incorporated and revised as needed.

Communication plans for contingency succession are similar, in many respects, to other types of crisis communications. Organizations should draw on existing plans and use the CSP to bolster overall preparedness, working with public relations, communications, and marketing personnel who may not be directly involved in developing the CSP.

Treat Succession Planning as an Ongoing Process

Contingency succession planning is not an isolated project that, once completed, can be placed on a shelf until needed. Associated components, including leadership development, are clearly ongoing concerns. More directly, the CSP should be reviewed annually to ensure continued accuracy and relevance. Maintenance of the CSP would likely fall under the purview of the board’s audit committee, which is often charged with annual or semi-annual reviews of the organization’s Enterprise Risk Management plan. When creating a CSP for a board chair, the process and maintenance would fall under the purview of the governance committee, with annual reporting to the audit committee. The board chair and chief executive should be intimately involved in the process. At minimum, annual revisions should include a review and update of the chief executive’s job description, the list of potential replacements, and the packet of key transition information for an incoming chief executive. These updates reflect the changing strategy, culture, and needs of the organization, as well as the turnover and development of internal talent. Additionally, board members should meet with C-suite leaders without the chief executive present at least once a year.

The best learning and preparation is often developed through experience. When ready, leaders should give their organization the opportunity to practice operating without its permanent chief executive. Have the chief executive take a sabbatical or focus on an extensive special project. This allows leaders to test the assumptions on which their CSP is based, and to identify vulnerabilities that may have been overlooked. A complete contingency succession rehearsal is the supreme professional development opportunity because it forces employees to take on higher-level responsibilities and tests their competence. It does all this in a minimal risk environment because, if necessary, the chief executive can always reassume his or her original responsibilities. It is much better to test and fail in this artificial context, than once the chief executive is fully absent.

In addition to being better prepared for an unexpected succession, this exercise may highlight duties and responsibilities that can be permanently delegated to junior employees, freeing up senior leaders to shift their time to more ambitious strategic initiatives. Although it may initially seem a specific endeavor of secondary importance, contingency succession planning has significant benefits of immediate value. Leaders should prioritize CSP development to grow their organization’s internal talent, enhance its operational effectiveness, and instill the resilience to prevent leadership transitions from becoming crises.

Acknowledgements

Thank you to Sophia Shaw, Director of Kellogg Board Fellows at Northwestern University’s Kellogg School of Management, and Greg Cameron, Zach Lazar, Jim McDonough, and Ashley Wheater, of The Joffrey Ballet, for the opportunity to study nonprofit board governance and from whom I learned so much.

Disclaimer: This article was written by the author while in business school and cannot be attributed to any subsequent employer.

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