Reasons or Dilemmas for companies to pick up an heir or grow their own

GE, a global example of succession planning, served as a leadership lesson to many other companies. It is both insightful and endearing the way GE's case study has served as an alarm clock to its peers. Their emphasis on preparing well in advance, selecting, grooming and replacing its successor can never be forgotten from the history of management. It has been discussed and had inspired several times, but every time it is so worth understanding the realms of it. It is almost a 'Holy Grail' of succession planning.

In 1991, Jack Welch, a man with precision about hiring and firing, said in his speech that the most important decision he will make from there on would be to choose a successor, and keeping to his words, the thought remained with him presumably each day. It is apparent the way the well-thought-out procedure started thereafter.

Welch had his pick of strong inside candidates, which was no coincidence; he was known for interviewing himself the finalists for top positions at GE. In one of the company meetings, Welch had brought a handwritten list of 24 candidates separated into three categories - obvious field, contenders and broader consensus field. After careful scrutiny, three insiders made it to the final round: Jeffrey R. Immelt, Robert L. Nardelli and W. James McNerney Jr.

Welch's main consideration was that the new incumbent should think absolutely different than him. While their skills were still relevant for GE, it was neither a surprise nor dismay that anointment of inside front-runner Immelt resulted in the other two protgs leaving the company and joining top jobs at other illustrious brands. GE had always remained a sort of finishing school for leaders despite the fact that Welch was nicknamed 'Neutron Jack' for laying off thousands in order to streamline jobs. But it is also known that Welch used to spend 50 per cent of his time on developing people; along with the board the process was monitored closely and cautiously.

Succession planning has to be carefully done as it is quite critical for corporates and is simply not writing a will; it is a little more complex, given the life of company and its employees follow with a wise decision and subsequent preparation. Some dilemmas that plague the board's decision and probable actions may enable the thinking or follow up process:

Building a leadership pipeline: There is a proliferation of new companies; the bigger start-ups are also eyeing the same talent in the acquisition race. The baby boomers have already aged; there is rampant retrenchment of non-performers and the newer talent has a different mindset and attitude towards work, which still is evolving for companies to adjust to. Hence, the cost of outside talent acquisition remains the highest all times. Identifying new people and investing in them over many years is toiling and expensive. While there will also be a time cost or lead time in nurturing an heir, anywhere from six months to five years or more in internal sourcing, grooming and testing the successor on the job, it is imperative the prospect experiences different situations and learns desirable response and actions in various market situations.

Harder to recruit outsiders, be open to grooming insiders: Experts in the executive research firms will vouch that in the past two decades, finding the best match to a top position has become extremely challenging. Growing one's own talent pipeline seems like an antidote, although there may be exceptions as per a given industry.

Even if the board has a fairly good idea of existing potential candidates, they may still have to take a call if they want to bring a totally unknown outsider. For immediate turnaround, an external hire may suit better. Another dilemma the board faces is that if an outsider has to be brought in, he should be from the same industry or a similar industry or from a different industry altogether. The board may even be in double mind about the nationality of the new incumbent. IBM's Lou Gerster, Ford Motor's Alan Mulally are some names that successfully led organisations without prior industry knowledge but with their excellent operational, intellectual, strategic skills, they set benchmarks for others to follow.

Even in the best of times, CEO succession is a risky affair. When succession happens in midst of a performance crisis setback etc the risks are exponentially higher.

Be realistic and prepared to choose one, lose many: When the CEO had to be chosen at one of the leading banks of India, it went through a careful process. After a woman CEO was chosen, the company lost her immediate peers. Some of them are heading large banks or corporates and doing well. One can only continue to nurture generosity and maturity in dealing with the aftermaths. When one amongst equals is chosen, names that get dropped get attractive offers elsewhere and may leave. Their skills, which are still significant to the company, require substitution and companies have to look at replacing the positions fast.

GE has re-started its process of succession planning last year. It is reported that after vigilant screening, the company has once again shortlisted insiders. Speculation puts spotlight on possible Immelt's successor as Steve Bolze, head of power and water unit, Lorenzo Simonelli, oil and gas CEO; and John Rice, vice chairman. The world is waiting to see if there is a new and distinctive learning for others to use as benchmarks again.

Succession planning is 'a crown of steel, a road of thorns'. While it will never be easy or simple, all efforts must be put in to make it as flawless as possible - a congenial process of transition with an intention of creating a seamless passing of the baton.

The author is a veteran in consumer durables and retail, and a former its COO and Director of LG Electronics