Changing of the guard: Four tips for ensuring a successful leadership transition

Michal Katz
Michal Katz Head of Banking Americas, Mizuho Americas
July 29, 2021

This article was originally published in Forbes.

The flurry set off by Warren Buffet’s recent announcement that Greg Abel will succeed him as CEO of Berkshire Hathaway shows that the public is tuned into the significance of leadership succession for a company’s future. Yet I've found that management teams too often treat succession as an afterthought or eschew it entirely. Perhaps it is no surprise, then, that studies described by McKinsey show that between 27% and 46% of leadership transitions are regarded as failures or disappointments after two years, which tells me that companies do not always emphasize this aspect of corporate governance as they should.

Recent changes at the helms of major U.S. public companies have demonstrated the strategic importance of succession planning.

At IBM, I thought Ginni Rometty showed both her commitment to the company and her foresight into the future of the industry by supporting and endorsing her successor, Arvind Krishna. A key aspect of any successful transition is realizing when the zeitgeist has shifted, and I believe Ginni Rometty’s career at IBM is a clear example of her keen understanding of timing.

When Apollo Global Management’s founder and CEO, Leon Black, stepped away from his leadership position in light of his association with Jeffrey Epstein, I believe Apollo demonstrated that it was an organization ready to make tough but necessary decisions. When the company announced Mark Rowan as CEO and appointed independent directors, it became clear to me that Apollo's leadership would put the interests of clients, shareholders and employees first.

And Jeff Bezos’ replacement as CEO of Amazon by his successor, Andy Jassy, is expected to create continuity while providing Mr. Bezos with space for other projects and allowing him to remain involved with Amazon. With this pick, I believe Bezos and Amazon showed that the company is doubling down on the formula that made Amazon what it is today.

What these examples demonstrate is that thoughtful consideration of succession planning can differentiate leading companies and management teams from the rest. 

As an executive and an advisor to CEOs, boards and institutional investors with more than 20 years of experience in the industry, I have seen firsthand what goes into a successful executive transition. In this article, I'll share my insights on how to make succession planning foundational to your long-term business strategy. Successful transitions are often the result of several important internal processes:

Always be cultivating

A good talent strategy recognizes that all hires, from entry-level interns to experienced managers, are part of the broader future of succession planning for the company because they impact the pipeline of leadership talent. Therefore, each person with hiring and management responsibilities should work to identify individuals who can advance the strategic vision. At the end of the day, bringing someone into the fold isn’t just filling a gap; it’s also introducing a potential executive in the making.

Expose leaders to new roles

To develop well-rounded leaders who are capable of understanding the full spectrum of a company’s footprint, companies should expose emerging talent to varied facets of operations. L’Oréal’s recently appointed leader, Nicolas Hieronimus, is himself a product of the beauty brand’s tradition of long employee tenure and mobility between job positions described by former CEO Jean-Paul Agon. Such organizational mobility can cultivate broad knowledge of the company, nurture curious and innovative minds, protect against siloed expertise and stave off attrition of valued employees.

Eliminate uncertainty

“You will be getting a new boss” may be one of the most anxiety-inducing sentences in the English language. Employees and new leaders alike typically crave a sense of the future direction of their team or the company as a whole. This makes consistent communication about how your company will announce vacancies, select leaders and define success critical to any leadership transition or succession plan. Clarity about vision, strategy, expectations and roles — and ensuring you leave ample time for the team to adjust — can make a meaningful difference in whether the company embraces a new hire or they become ineffective.

Make succession part of the routine

While it’s often on the agenda for directors themselves, boards should consider adding succession planning and leadership development to the evaluation criteria for executive teams, as well as that of middle management. This can help them build a culture that is better prepared for leadership transitions and a company that is capable of adapting to market shifts. It can also help ensure that the pipeline of talent can meet any moment. Employees who know that their talent will be rewarded will be more likely to rise to the occasion.

Successful leadership transitions do not just fall into place. The changing of the guard is an opportunity if it's executed well, but it is an often overlooked point of vulnerability for teams that aren't prepared.

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