Why companies need succession planning now more than ever

Chanel's efficient creative director appointment shows the value of advance preparation

The same day that Chanel confirmed the death of longtime creative director Karl Lagerfeld, the French luxury house made another announcement, naming studio director Virginie Viard as his successor.

The news was monumental for several reasons. For one, Chanel is one of the most celebrated brands in the world, and few people outside the industry knew Viard’s name before last month, though she worked alongside Lagerfeld for more than 30 years.

For another, as the New York Times put it in a 2015 piece, “fashion is notoriously bad at succession planning,” so for the company to have an heir waiting in the wings before the rumor mill could start churning was an achievement in itself.

Many designers and industry executives have struggled in recent years to find the right person to whom to pass the baton and the right time to do it. Last year, Diane von Furstenberg rehired former creative director Nathan Jenden after Jonathan Saunders—whom von Furstenberg once called “the perfect creative force to lead DVF into the future”—resigned less than two years into his tenure. In November, J.Crew announced that CEO Jim Brett would exit the company just 16 months after taking the reins from legendary chief Mickey Drexler; a committee of four executives is currently in charge as the retailer searches for a replacement. The house of Oscar de la Renta, too, is on its second round of creative directors since the designer’s death in 2014.

Fashion is hardly alone in its challenges with succession planning. According to Ronald Friedman, a partner at the accounting and advisory firm Marcum LLP, a member at New York City’s WeWork 115 Broadway, the task is “probably the hardest thing” that many leadership teams have to handle. While publicly traded companies have boards that are specifically tasked with planning for the departure and replacement of executives and creative leaders (and even then, sometimes fall short of this mandate), private businesses are often ill-prepared when the time comes, particularly in the case of a death or a surprise exit.

In many cases, Friedman says, leaders “get so busy with their day-to-day life that they don’t think about succession. It’s like how a lot of people don’t think about buying life insurance until it’s too late, right? Because they’re not proactive; they’re more reactive.”

The past two years, in particular, have highlighted the urgent need for companies of all sizes to have a plan in place in case a key leader leaves or needs to be removed unexpectedly, as the #MeToo movement has led to the dismissal or resignation of numerous executives across seemingly every industry.

This kind of abrupt transition can be destabilizing for a company, says Elizabeth Zea, co-founder and managing partner of JUEL, an executive search and talent consultancy, and a member at New York’s WeWork 54 W. 40th St. In these situations, she says, companies “might want to bring in an interim leader to steady things—and that could be the chairman of the board, or it could be a past leader, or if not the chairman, then a board member.”

For instance, after Intel chief executive Brian Krzanich was forced to resign last June over revelations that he had a consensual relationship with a subordinate, the company promoted CFO Robert Swan to the role of interim CEO. In January, Swan took the top role permanently.

A planned retirement allows for much more advance preparation, but many businesses still wait too long to act. “In general, succession planning should happen a lot earlier than most people think it should,” says Zea. “If you’re starting to think, ‘I need a successor,’ you’re almost too late. It should just be part of the culture of the company.” If an executive wants to leave at age 55, she says, “Don’t start looking at 53. You should start looking at 47, understanding that you want to get him or her in, try them out, make sure they’re right, and have a little bit of buffer time if they’re not.”

Even after taking every precaution, a company’s first choice may not turn out to be the best fit for the role—particularly if they are trying to fill the outsize shoes of a founder.

“With the founder, it’s their identity,” says Brenda Malloy, president of executive-search firm Herbert Mines Associates. “It’s a much more challenging search. And culture fit is even more of a mandate because they’ve got to trust that this person understands the particular nuance of the business and the culture.”

The tech industry, in which many major companies are still founder-driven, has seen a wave of such departures in the past year, particularly within Facebook’s portfolio of companies, which lost the co-founders of both Instagram and WhatsApp in a matter of months.

These transitions tend to be much more seamless if a leader is promoted internally after years of learning the ropes, says Friedman, rather than being forced to acclimate in a matter of months.  “A good leader starts giving responsibility to the successor long before he steps down,” he says. “Give them little bites of the apple. Let them learn the shipping department, let them learn the accounting department, let them learn the design department, and let them take them over and start directing the company.”

Retailer Kohl’s brought in CEO Michelle Gass in 2013—five years before longtime leader Kevin Mansell officially retired. Gass rose through the executive ranks and was promoted to CEO-elect in September 2017, giving her eight months to work alongside her predecessor before officially taking the top job.

And while CEOs and creative directors may bear the ultimate responsibility for steering the company, management teams should go a step further and identify potential successors for members of the C-suite and even below—what Malloy calls “bench succession planning.”

“At first you say, what are our critical roles? What can we not afford to have vacant?” says Zea. “And then you say, whom do we have in the organization we can start to groom to succeed this person? In most really good companies, it will be part of their bylaws for a certain level of job that the hiring person or the person in charge of that function has to have a successor or two identified.”

This also gives firms a contingency plan in case something happens to their initial pick. Last spring, Nike lost at least 11 executives—including CEO Mark Parker’s heir apparent, Nike brand president Trevor Edwards—amid charges that the company and its leaders created a hostile work environment for women and failed to adequately promote women and people of color.

Both Apple and Disney have also recently seen executives widely considered to be next in line for the CEO role exit unexpectedly (albeit under less dramatic circumstances): Apple retail chief Angela Ahrendts announced in February that she was leaving the company for “new personal and professional pursuits,” while Disney’s former COO Tom Staggs departed in 2016, two years before CEO Bob Iger’s planned retirement. (Iger has since extended his contract through 2021.)

To vet potential successors for top leadership jobs, Malloy says there are several techniques that should be used in tandem: “competency-based assessments, third-party testing, and deep referencing. Those three mechanisms together are the most predictive.”

Boards or management teams can also reduce the time it might take to find an external candidate by starting the search well before a candidate is actually needed. “What that does is it cuts the recruiting time in half if you’re really systematic about it. So instead of a search taking 12 months, it might take four to six months because you’ve already met five fantastic CFOs over the last two to three years,” says Zea. “Proactive pipelining of talent is another way to externally succession plan smartly.”

Interested in workspace? Get in touch.