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M E M O

From: David E. Edell, President

Date: September 6, 2006

 

DRG is a national Executive Recruitment Firm working exclusively within the Nonprofit sector. Learn about DRG's services, resources, recruitment strategies and current search assignments at our website www.drgnyc.com

Succession: Preparing Future Leaders

By David Hinsley Cheng

This originally appeared in CEOUpdate, Volume XVI, Number 407, August 3, 2006. Reprinted with Permission.

Recently over the course of a search, the board chair, a retired CEO of a major international bank, turned to me and said, "there's not a lot of talent out there in the market". Soon thereafter, DRG, Inc. set out to learn how the sector is responding to the perception of a leadership shortage.

This spring, DRG conducted its national 2006 Nonprofit CEO Survey to explore the state of organizational preparedness for upcoming leadership changes. The results were surprising. In our survey, we found that while 40 percent of CEOs indicate plans to leave their jobs within 24months, 58 percent of all CEOs indicate that neither they nor their boards have discussed the issue of succession planning. Of the 40 percent leaving their jobs, half are retiring, which means a net loss of leader in the sector. There was little statistical variance of these results from respondents coming from organizations with budgets under $5 million and respondents with budgets over $20 million. Organizations, large and small, are equally challenged and equally unprepared for leadership changes.

Even more surprising was the fact that only 34 percent report that their organization had any formal system for training and developing senior staff. Yet 84 percent of CEOs indicate that they have been highly involved in developing internal talent. This disconnect suggests that while most CEOs recognize training as part of succession planning, very little is done to create formal programs to ensure leadership continuity. The combination of these factors will have a significant impact on how organizations will be led in the future. In order to ensure an effective succession strategy, organizations need to prepare 12 to 24 months ahead of any expected leadership changes. That means boards and sitting CEOs working together to develop plans to look externally and internally.

Nonprofit executives and boards need to ask themselves the following questions to ensure that their organizations are prepared for leadership changes.

• Is there a written succession plan in place?
• Are there emerging leaders within the organization?
• What formal development programs are in place to prepare senior managers to move into the CEO role?

Any succession plan should include developing internal talent, however our survey indicates that only 54 percent of organizations work to identify and develop internal executive leaders. In this regard, nonprofits can learn from the corporate sector and even the military. Most Fortune 100 companies spend significant resources on training and development of senior staff. In 2004, the private sector spent $6.5 billion on employer-sponsored executive training. In a book entitled Be, Know, Do, authored by Frances Hesslebein and General Eric Shinseki they stress how the U.S. Army, obviously not in a position to recruit leaders externally, currently trains and develops more leaders than any other institution in the world. For the military, succession plans are always in place for the immediate transfer of leadership at all levels of command.

With successful organizations, leadership development and effective succession planning are not an occasional topic of conversation. They are an active and continual process.

As a consultant, I see how addressing daily demands of fundraising, member development, government relations, etc. takes the bulk of an organization's resources. Long-term projects often fall by the wayside as executive find themselves putting out a new fire each week. However, CEOs and their boards will be well served to begin having succession planning discussions without delay. According to our survey though, even this first step is the subject of organizational disagreement. Our CEO Survey indicates that 55 percent believed that the board has the primary responsibility for succession planning; 28 percent believed that the CEO plays in the lead role. So who should lead the effort? Perhaps this organizational indecisiveness is a cause of the lack of succession planning.

This reality is that both the CEO and board must jointly take an active role in beginning the conversation and then developing the succession plan.

A succession plan should incorporate.

• Who will be involved and what will be their role?
• A separate strategy and timeline for planned and unplanned executive departures.
• Integrating the HR departments to develop training and retention programs.
• Requiring the CEO to take an active role in mentoring senior staff leaders.
• Outline the role the incumbent CEO will play in supporting the board during the search process.
• Define when the incumbent CEO will step down.

The survey findings can serve as a reminder to organizations. Unless boards and CEOs begin addressing leadership transition right away, they will find themselves scrambling and competing to recruit talented senior executives and dealing with the disruptions that these transitions can cause. As nonprofit organizations as a whole are now requiring greater management expertise coupled with the diminishing pool of nonprofit executives, it's clear that those organizations that have prepared for these changes will be in a better position to accomplish its goals.

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David Hinsley Cheng is managing partner of DRG, Inc., an executive search firm that works solely with nonprofit organizations since 1987. DRG, Inc. is based in New York and works with international, national and local organizations in communities across the country. For the full survey findings visit www.drgnyc.com/2006_Survey/Index.htm.