Almost half of UK companies have experienced an unexpected change in leadership in the last 12 months with some stating a detrimental effect on business. Almost 1 in 5 (19%) said that it had caused a loss of or slowed growth due to a lack of leadership or direction. Almost a third (32%) cited that it had led to a decrease in morale at the company. The research findings are revealed after polling 258 UK-based HR decision makers across a range of sectors about succession planning.
Roughly half of those surveyed said the unexpected change in leadership had a negative impact on employees and company growth. However, only a third (32%) admitted they have a CEO succession plan in place, despite a similar number of organisations (28%) claiming it takes six months or more to replace their CEO.
Furthermore, research from FTI Consulting found that companies with CEO succession plans in place experience less stock market volatility during a leadership transition, even six months after the change. This proves the tangible link between CEO succession planning and company performance.
Seemingly, organisations are focusing their attention on identifying critical roles (88%) and succession plans across the company (85%) over those for the CEO. Melanie Long, senior managing consultant at SHL comments: “Whilst it’s encouraging to see that HR leaders are recognising the importance of succession planning across the organisation, our research also suggests that in doing so they have taken their eye off the ball with CEO succession.” She adds: “As UK companies continue to operate in tough and unpredictable market conditions the role of the CEO will always be a vital one. It’s not always easy to replace top talent – our Talent Analytics data shows that in fact just 1 in 10 people in the UK have the potential to be a truly effective leader.”
The survey findings also indicate that HR leaders are understanding that succession planning needs to be in place across the organisation – with almost half those surveyed (48%) having succession plans for technical experts or specialists and (43%) for junior managers. Interestingly, 23% of those polled also had succession plans in place for graduates, showing over 1 in 5 are favouring a ‘grow your own’ leadership recruitment strategy, by ring-fencing and nurturing high potential graduates from an early stage.
Long continues: “In this competitive market for talent, it appears organisations are shifting their focus to succession planning for the ‘engine room’ of the company, those that are innovating, creating value and delivering results. However, given the negative effects of losing a leader, succession planning needs to focus on identifying potential leaders for critical roles regardless of whether they are at the top or across the organisation. Leadership talent within any business is a cornerstone for future growth and innovation, so it is critical to analyse and know where your future leaders will come from. Organisations that take control of their leadership pipeline will be best placed to cope with and successfully navigate the business challenges that lie ahead.”
One reason why HR leaders may be focused on identifying high potential talent from lower down the organisation for their leadership pipeline is because according to SHL’s Talent Analytics data, they have more leadership potential than their bosses. SHL’s data reveals that 1 in 12 of those occupying a more junior role in an organisation have stronger talent to be an effective leader than those more senior to them.
“Both our research and Talent Analytics data indicate that companies are getting under the skin of the leadership potential in their organisation. Ultimately, organisations need to have the processes in place to take an objective view of their people and understand where the next generation of leaders will come from to perform strongly in future,” concluded Long.