The financial services community needs to put internal succession planning on its agenda, as the influence it has on cultural climate and performance is undervalued.
In particular, professional boards must understand that its fiduciary duty includes having a clear plan for the next successor.
"They are all laden with assumptions about continuity and those assumptions can fall in a heap once things go off the rails," Hay Group associate director Nicholas Conigrave told InvestorDaily.
"For example, if a new chief executive officer (CEO) comes in and it's not well managed, is poorly executed and not in line with the strategy you can do a lot of damage to a business."
The context of volatile markets, retiring baby boomers and prolonged longevity has put the succession planning piece front and centre more so than five or 10 years ago, Conigrave said.
"Businesses don't forward-plan enough. They tend to leave it too late and see it as an activity or an event when in fact it's a process," he said.
He said succession planning is one of the most critical processes that a board needs to manage as leaders can fundamentally impact the climate of the organisation, which then plays a major role in its performance.
"To lose six months of growth can be the make or break of an organisation these days [so] strategy clarification needs to be future-focused," he said.
"You need to consider how much of the value of the organisation is in how this business is led and what is the risk if that was to change."
The planning of a future CEO then rolls into talent management of the whole organisation.
While there are good reasons to bring in external hires, in a market where talent is short and a body of talent already exists in the business, it is inappropriate not to maximise the leverage of the current staff, Conigrave said.
"If you take the high potential [staff] and build their capacity of being the potential successor of the CEO, it drives performance of the organisation in the day to day," he said.
"You get that payback in the very immediate sense and you also build loyalty and engagement of those individuals."
He said if executed well, the succession process is seamless and becomes an on-going process that never stops.
"One of the most important things businesses must do is to ensure continuity. To not manage the process of succession is to have a major wildcard or unknown in your mix," he added.
