Why succession management is important?
Succession management is always a sensitive matter. After all, the future of your company built over several generations is at stake. The aim of effective succession is to meet several expectations as well as to reconcile the conflicting goals that may arise. That’s why today’s corporations are more active about leadership succession. After the success of Andreas Gerber at SME business Switzerland, boards started taking names from outside organizations for candidature of CEO. However some argued that internal candidates are a better option.
To find out real data, Credit Suisse conducted experiments in around 600 companies and on an average 200 CEOs. The result that came out was very contradictory from the expected result. It shows that whether a company chooses an insider or outsider for the role of CEO they approximately performed at the same Level, and their success moreover depends on the company’s situation at the time of their joining. Also the director turned CEO is a great combination of insider and outsiders. Being part of the board they have good knowledge of the company’s situation, financial position and future goals.
Hiring an outsider is also favoured by the HR team as before reaching the top of the board, the outsider learns the company’s culture and gets itself drowned into it. Contesting for a higher position while serving under the current CEO makes him or her more indebted to serve CEO. Also existing CEOs can help outsiders how to play safe while serving.
Many criteria that boards use to evaluate an outsider like, age, past job, graduation marks, school college are irrelevant to judge candidate’s thinking skills and to judge his or her performance in the future. Who is well suited to a company depends on company situations like insiders are best when a company is in crisis. Of the 200 CEOs studied, 120 were in stable companies so the board chose insiders mainly.
Why do insiders perform better in stable companies ?
Companies that are stable have huge resources to invest, they have well synchronized culture which makes it difficult for outsiders to fit. However, when a company is in crisis, an outsider performs three times better than the insider because he thinks of more fresh ideas and new strategies. In recent years, established corporations Ike Siemens, Hershey and Wrigley have hired CEOs from outside the company after several decades. Measuring performance is multidimensional. It involves strategic analysis, scientific research and intuitions. It can help board in making choices. General Motors hired CEO Rick Wagoner in 2009 and believed he was a perfect choice. But soon company lacked faith in his ability and distrust arose. Also he was disrespectful towards his colleagues. He performed well for a few years but soon the company’s pillars fell off and he was forced to resign. This made the board more sceptic and engaged in succession issues and making the right choice.