succeeding at ceo succession - Spencer Stuart files/research... · 2013-06-07 · tize maintaining...

succeeding at ceo succession

Models for the Asia Pacific Board

70779_Spencer_70779_Spencer 4/19/12 2:47 PM

CEO succession planning has emerged as an important topic in Asia, as companies focus on building pipelines of senior executive

talent in a region where demand for experienced leaders continues to

outpace the supply.

Planning for the succession of the CEO and selecting a successor are uni-

versally considered fundamental responsibilities of the board of directors,

and many elements of succession planning are similar, regardless of a com-

pany’s industry, size or geographic location. These include tying the profile

of the future CEO to the strategic direction of the company, surfacing

potential successors, and evaluating and developing candidates.

But companies in Asia face unique pressures related to the pace of growth,

the availability of experienced executive talent and the governance and owner-

ship models, and these must be taken into account in succession planning.

To better understand succession planning in an Asian context, Spencer

Stuart brought together board directors, CEOs and other senior executives

in Singapore for a panel discussion featuring Hsieh Tsun-yan, an

independent director of Sony Corporation, Bharti Airtel and Manulife Finan-

cial; and Koh Boon Hwee, chairman of Yeo Hiap Seng and a board direc-

tor of Agilent Technologies. Among the topics they discussed were succes-

sion planning strategies, the different succession dynamics in family-owned

and government-controlled companies, the characteristics Asian boards look

for in CEO candidates, and the extent to which practices from the West can

be adapted to Asia. Moderating the discussion was Michael J. Anderson,

the managing director of geographies for Spencer Stuart who is responsible

for the firm’s offices globally.

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succession planning: a model for asia Corporate governance and succession planning in Asian

companies must be understood in the context of three

common corporate ownership structures. In state-

owned or government-influenced companies, the gov-

ernment plays a role in helping companies execute

their strategies consistent with national initiatives and

expects to have some involvement in CEO succession

decisions. In family-run businesses, succession typically

takes place through the family. The family is highly

invested in the business, personally and financially, and

family members often are more willing to confront each

other when issues arise; however, deep personal rela-

tionships can breed conflict or feuds or keep the family

from considering outside perspectives or leadership at

key times. Finally, succession at independent private or

public companies can differ from the West because of

the realities of rapid growth in the region and shortage

of executive talent.

As a result, while Western succession planning practices

can offer some useful ideas to Asian companies, for

example, in the areas of talent development and career

pathing, others can be ineffective or inappropriate, said

Hsieh and Koh. For example, a process that pits multi-

ple candidates against one another is less desirable in

an Asian context, where boards are more likely to priori-

tize maintaining harmony among executives and retain-

ing key players after the leadership transition. The top

leadership bench in Asian companies is thinner than

those in multinational corporations, so Asian compa-

nies cannot afford the departures common in highly

publicized succession “races.”

When succession planning works well, the process

draws on the inherent strengths of the business and is

aligned with the governance structure. In a well-run

succession planning process, the board looks to the

CEO to develop succession candidates, regularly dis-

cusses the strengths and developmental needs of those

individuals and has frequent exposure to potential suc-

cessors, so directors are able to develop opinions about

the candidates over time.

From left: Michael J. Anderson, Koh Boon Hwee and Hsieh Tsun-yan

“If you are on the board andCEO succession hasn’t beenplanned as a routine, the CEOmay see it as a threat...”

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“There is no single formula. The process works better

if it is viewed as part of the governance routine,” said

Koh. “If you are on the board and CEO succession

hasn’t been planned as a routine, the CEO may see it

as a threat if it’s introduced; however, if it’s already a

routine practice, everyone takes it as a part of the

DNA. Therefore, the board should introduce a regular

succession planning process when a new person joins

as CEO if it doesn’t exist already and put the onus on

the CEO to surface internal candidates as part of a

succession plan.”

characteristics of an effective ceoAnother difference between East and West is the view

of the CEO role. Asian company boards are wary of the

Western-style “superstar” CEO, and prioritize the team

over the individual. So-called superstars can struggle in

that environment, while insiders who are comfortable

with the culture tend to do a better job, said Koh.

In this context, it is important for a CEO to build and

grow a strong team and have the emotional intelligence

to understand that he or she does not necessarily have

all the answers. Humility is a valued trait in such an

environment. “I did research on the top 10 killer dis-

eases of CEOs: Across the board, CEOs who lost their

humility were the ones who suffered the biggest down-

fall,” said Hsieh.

Cultural fit can be difficult but not impossible to assess

in external candidates. When considering external CEO

candidates, boards should spend significant time with

each to get to know them and then discuss collectively

how individual candidates are likely to fit in with the

organization. “Outsiders are not always a perfect fit

culturally, so boards have to consider the potential

tradeoffs between the expertise a candidate brings and

their cultural fit with the organization,” said Koh.

A common succession planning mistake boards make

— regardless of region — is failing to identify the skills

and capabilities that will be required of the future CEO,

rather than the skills that are critical in the present.

“The CEO should be selected based on the future

requirements of the company and not past and current

performance and challenges: therefore, multiple tools

are needed to make the right decision,” said Hsieh.

“Especially if the company or industry is undergoing

rapid change, it is important to evaluate internal candi-

dates in the context of future needs, over and above

their operational or technical competence, to under-

stand whether they will be up to the task of leading the

organization in the future.”

assessing and developing talentAn effective CEO succession planning process requires

a pipeline of executive talent, and the board plays an

important role in ensuring that the CEO is developing

the next level of executive leadership inside the com-

pany. Yet, at many young and fast-growing Asian com-

panies, there can be a relative lack of bench strength.

Because these companies have grown quickly, they

frequently have younger executives in more senior posi-

tions than their Western counterparts or have underin-

vested in leadership development. To ensure that talent

development is a priority, the board needs to put in

“If a father makes his son CEO but still yells at him at

the dinner table, then he’s still in charge.”

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place incentives to encourage the CEO to groom future

leaders.

“In the best-run companies, the board will have access

to executive team members, who will regularly attend

board meetings and make presentations to the board,”

said Koh. “The board also should be exposed to high

potentials another level down; it’s too late to wait until

they are reporting to the CEO. A confident CEO, mean-

while, is comfortable exposing his or her team to the

board.”

Executive talent development can be somewhat more

complicated in family companies, where potential suc-

cessors may struggle to become autonomous and learn

to lead in the shadow of the current CEO, who may be

a parent. “Titles may not mean anything in a family-

owned company,” said Hsieh. “If a father makes his

son CEO but still yells at him at the dinner table, then

he is still in charge.” Patriachs and matriarchs’ trouble

in letting go and evolving their own identity can be the

biggest obstacle to successor development in family

businesses.

One way that Western companies sometimes employ to

evaluate the performance of finalist candidates relative

to each other is the “horse race,” in which two or three

top internal candidates are given challenging assign-

ments, and their performance in these assignments is

evaluated. While these sorts of tests can be used effec-

tively, particularly if the competition among candidates

is not disclosed publicly, they can be counterproductive

in Asian companies because the “winning” CEO will

need the help of his or her competitors for the role in

order to be successful; without a large executive bench,

organizations cannot backfill executive talent as easily as

many Western companies, said Hsieh.

While it is not always possible to prevent the loss of

key people in a CEO transition, the board and CEO can

improve the chances of retaining critical talent by com-

municating directly with them about their role in the

organization and the expectations for them. “I often

work with individuals on CEO succession workshops

where I encourage them to plan their teams after the

CEO mandate is given to them. Most times you find

that people were so focused on reaching the top, they

failed to see the other contenders as critical assets they

needed when they became CEOs,” said Hsieh. “We also

encourage the participants to think through what they

would do if they didn’t become the CEO. This helps

prepare them to weigh carefully other eventualities,

including the benefits of being a supportive team mem-

Koh Boon Hwee

“Many times, the internal candi-dates are well-known, so boardsend up concentrating on theirdeficiencies, while outsiders tendto be well-presented.”

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ber to someone else being CEO. Very often, managers

are only trained to win. Thus, this helps them deal with

the broader picture of success in life and a broader set

of institutional outcomes to prepare for.”

internal versus external candidates: what works best for asian companies?While there has been a growing preference for internal

candidates among Western companies, boards

frequently consider external candidates as part of the

CEO selection process or benchmark internal candi-

dates against external talent. By contrast, Asian compa-

nies favor internal candidates and are less likely to

benchmark candidates against external executives.

Process is important when considering external candi-

dates, argue Koh and Hsieh, as boards must under-

stand the tradeoffs they are making between knowledge

about the company and breadth of business experience

or between cultural fit and specialized expertise. “Many

times, the internal candidates are well-known, so boards

end up concentrating on their deficiencies, while out-

siders tend to be well-presented,” said Koh. “If a com-

pany is highly complex, an insider will normally do

better even if a significant change is required, as the

internal candidate will understand it better contextually,

provided the right person is selected for the role.”

However, a board is wise to keep its eyes open for

talented people outside the company, even if the need

is not immediate, Koh added. “The board shouldn’t

make the mistake of subscribing to the views of any

single individual, including the CEO, in such an impor-

tant decision.” Another mistake boards can make is

deciding very late in the CEO succession process to

consider outside candidates, said Hsieh. “There has to

be an explicit point in the process early on when the

question of whether to have external candidates must

be considered. Very often, the board takes a call very

late into the process to start looking at external candi-

dates and this is a sure recipe for his/her failure, as

Hsieh Tsun-yan

“Very often, the board takes acall very late into the process tostart looking at external candi-dates and this is a sure recipe

for his/her failure, as there is nointegrated view and support

once the individual comes in.”

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there is no integrated view and support once the indi-

vidual comes in,” he said.

Meanwhile internal candidates can benefit from getting

a view of business beyond their company. Boards

should encourage senior executives to gain wider expo-

sure to related industries, by serving on an outside

board, for example, and building a strong network

among key stakeholders (e.g., regulators, press, non-

governmental organizations, unions and industry

observers). “Very often, if the CEO candidate is pro-

moted from within and has limited exposure outside

this company, they can have an insular view of the

world,” said Hsieh.

conclusionWhen planning for the succession of the CEO, boards

must consider a number of issues, including the neces-

sary experience, skill-sets and competencies that will be

required by the next CEO based on the company’s

strategic direction; the availability of internal talent; and

the advisability of seeking external candidates or con-

ducting external benchmarking as part of the process.

Although these issues are universal, the CEO succes-

sion planning processes of Asian companies also must

take into account the unique characteristics of Asian

business models, particularly related to culture, preva-

lent governance models, the executive talent pool and

the pace of growth in the region. By drawing on the

best of both Asian and Western succession planning

approaches, boards can tailor a process that produces a

steady pipeline of CEO-ready leadership talent.

From left: Ravi Thakran, managing partner of L Capital Asia, Malini Vaidya of Spencer Stuart and Koh Boon Hwee.

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Panelist Biographies

Hsieh Tsun-yan is the founder and lead counselor of

LinHart Group, a leadership services firm specializing in

advising boards and counseling CEOs on issues of

succession, leadership trajectory and top team effective-

ness. In a career spanning 30 years with McKinsey, he

served clients in a wide range of countries and indus-

tries, amassing a wealth of experience in corporate

transformation and leader development. He joined

McKinsey in Toronto and became its managing director,

Canada. Hsieh founded McKinsey’s leadership services

globally to help clients develop better leaders faster. He

returned to Asia in 2000 as managing director of

ASEAN practice and was chairman of Asia Client Com-

mittee until he retired in 2008. Hsieh is an independent

director of Sony Corporation, Bharti Airtel and Manulife

Financial Corporation. His board roles in Singapore

have included the Singapore International Foundation,

the National University of Singapore Business School,

the Institute of Policy Studies and the Singapore Sym-

phony.

Koh Boon Hwee is the nonexecutive chairman of Sun-

ningdale Tech, Yeo Hiap Seng and AAC Technolgoies.

He serves on the board of Agilent Technologies. In

addition, he is the chairman of the Nanyang Technologi-

cal University Board of Trustees. Koh was previously

chairman of DBS Bank and DBS Group Holdings (2005-

2010), Singapore Airlines (2001-2005), SIA Engineering

Company (2003-2005), Singapore Telecommunications

(1986-2001) and Omni Industries (1997-2001). He was

executive chairman of the Wuthelam Group of Compa-

nies (1991-2000) and, before that, managing director of

Hewlett-Packard Singapore (1985–1990), where he

started his career in 1977.

About Spencer Stuart

Spencer Stuart is one of the world’s leading executive

search consulting firms. Privately held since 1956,

Spencer Stuart applies its extensive knowledge of indus-

tries, functions and talent to advise select clients —

ranging from major multinationals to emerging compa-

nies to nonprofit organizations — and address their

leadership requirements. Through 53 offices in 29 coun-

tries and a broad range of practice groups, Spencer

Stuart consultants focus on senior-level executive

search, board director appointments, succession plan-

ning and in-depth senior executive management assess-

ments. For more information on Spencer Stuart, please

visit www.spencerstuart.com.

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succeeding at ceo succession - Spencer Stuart files/research... · 2013-06-07 · tize maintaining...

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