A Tale of Two Companies resized 600

“I begged, as much as a man in my position can beg. ‘Don’t leave! What are we going to do now?’ I started to think about the things he did, hopping on a plane, going to Abu Dhabi, to Munich, London – I’m too old for that stuff! ‘You can’t leave!’”

 

 

 

 

Bill Gross, Co-Founder and CIO of global investment giant PIMCO told a Bloomberg reporter as he explained the circumstances of the recent upheaval at his company. In January, CEO Mohamed El-Erian who managed day-to-day operations of the firm abruptly announced his resignation.

On the heels of constructing a still to-be-implemented strategy to drive growth in the business and with rumors circulating about tensions between Gross and El-Erian, the CEO’s departure has left senior leaders at $2.2 trillion PIMCO scrambling and phones ringing off their hooks as anxious clients demand answers regarding the future of their investments. As the dust continues to settle, 69 year old Gross has begun to very publicly reassess the way he runs his business, acknowledging the need for better planning and more delegation.

The headlines issuing out of BlackRock, a $4.3 trillion New York based investment firm could not offer any greater a contrast. In early April the company released a memo detailing a significant and ongoing re-organization at its top levels as part of their succession planning strategy, including both new hires as well as a number of promotions. With an eye toward future strategy, the company is making an effort to groom the next generation of leadership, despite assurances from the CEO that he has no plans to leave in the immediate future.

Unfortunately, not all companies are as forward-thinking and proactive as BlackRock has shown itself to be. A recent survey conducted by the Stanford Graduate School of Business found that only 46% of companies had put in place a formal process for succession planning with regard to key executive positions and only 54% of companies actively groom a successor for the CEO. At the heart of this inactivity lies a belief among 75% of companies that they do not possess an adequate pool of ready now talent to take the place of their key leaders.

Peter Handel, the CEO of Dale Carnegie Training recently sat down for an interview with Forbes Magazine in which he articulated a number of pitfalls to avoid and some succession planning best practices he felt companies should place greater stock in. Echoing the advice we offered in a blog last year about succession planning, Handel emphasized the key differences between succession planning and replacement planning:

One mistake companies make when contemplating tomorrow’s key managers is not doing a realistic self-audit that questions what they’re all about. Who are we and where are we going? What does our marketplace want? Who is the customer and how do we adapt to changes? “It’s always a mistake to try to clone a current CEO,” Handal said. “That’s a very common mistake that people make.” In other words, he added, change is good.

Handel went on to stress the importance of keeping the succession planning process transparent so as not to alienate incumbent executives but to also avoid creating a spectacle or “gladiator match” over competing successors who may feel pressured to leave the company if they are not elevated to the top ranks. Those are important things to consider as a company moves to implement a succession planning process, but one piece of advice offered by Handel stood out amongst the rest:

One way of making sure that you choose the right person to fill an opening spot is to watch several of the most promising candidates operate over time. Though hiring from outside a company is common, it can be risky in that it’s difficult to truly know how those possible successors will react to the new position.

Though Handel correctly points out how risky external hiring can be, the reality that companies face is this: all hiring decisions carry with them a significant element of risk. The cost of a bad hire, as we have pointed out in the past, can have a seriously negative impact on a company’s bottom line. Perhaps more interestingly, Handel advises businesses to watch promising candidates operate over a period of time, a practice that could not be more crucial to a company’s ability to make confident, strategic, hiring decisions. There is no need, however, to limit this practice to internal talent.

The best way to avoid unpleasant surprises like the one visited upon Bill Gross only a few months ago, is to partner with an external firm to continually network external talent. This will help you get to know the top players working for your competitors and benchmark them against internal talent. When the time comes to bring new people into the organization – whether as the result of an abrupt resignation or as part of a strategic succession plan – you can do so with confidence. To understand more ways succession planning – particularly with external talent – can affect your business, download our report “Understanding Risk Exposure.”