Succession planning is key to smooth process: how well internal succession is handled says much about a company's ability to groom its next generation of leaders, in finance and elsewhere. Companies that do it right have well-engineered processes and a commitment to thoroughness.

It was a tragedy that can happen to any company at any time: The chief information officer at Parsons Brinckerhoff, the international engineering and construction management firm, died suddenly of a heart attack. But, instead of scrambling, the company immediately replaced him with a designated short-term successor, who filled the job for eight months until a permanent replacement, located with the help of a recruiter, took over.

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Richard A. Schrader, the company's executive vice president and CFO, notes that the CIO's death came just after top company officers had met on a thorough succession program in which they looked at everything from replacing key managers literally overnight to identifying "young stars" who could be top management material well down the road.

A key first step, Schrader says, was identifying people who could fill in immediately in a "hit by the bus" scenario, should one of 20 key company executives fall ill, be in an accident or die suddenly. Aided by a consultant, the management team went through that exercise with the top cadre--the CEO, Schrader, the CIO, general counsel, HR director, etc.

Schrader--FEI's Vice Chair for 2005-6--then met with the company treasurer, who would be his designated replacement on an emergency basis. "I sat down with her, and said, 'Here are some things that you need to know about.' If there is specific knowledge or a specific place to find something, that needs to be communicated. That gets into what things are in process."

Succession is often a sticky wicket, at any size firm. While CEO succession stories get the most attention, succession planning is--or should be--a staple of corporate policy that also involves managers of the business units and departments. Some companies do it very well; others do it poorly, and large organizations generally do it better than small ones, experts say. When succession groundwork hasn't been well laid, that's generally when recruiters get called in to find a new leader.

Fortunately, say a number of recruiters and personnel specialists, companies are doing a better job of looking ahead and planning. Some of that, however, may be less than voluntary: More and more, directors are asking senior executives to demonstrate that they have succession plans in place, from the CEO to a few rungs down the organization chart. "Boards of directors are much more attuned to this as risk management issue," Schrader says.

"Succession is a deliberate process," says Nancy Mobley, president of Insight Performance Inc., a human resource consultancy in Dedham, Mass. "A lot of people consider this a mystery, but the No. 1 rule is to be deliberate and to plan. Particularly in finance, someone may be strong technically and know the business and know accounting, but not have the people skills or the management skills." As a result, she says, such individuals need coaching and development of softer skills.

Still, that's easier said than done. Succession "should be like breathing, and it's not," Mobley adds. "It's uncomfortable, it's political; it gets put into the closet. To do [personal] development, you may have to put someone out there on the front line for three to five years. What they learn in training programs simply may not stick."

Historically, some senior managers have been leery of grooming a successor, concerned that the company might elect to show them the door and promote their lesser-priced subordinate. On the other hand, a confident manager eager for a promotion might welcome the chance to prepare someone to take his or her place.

That's what happened recently with a client, says Jeanne Branthover, a managing director at Boyden Global Executive Search and head of its New York office. She says she spoke with the hiring manager, and he assured her, "I'm looking [for this person] to be my takeout, and I will give them the time and energy to learn this job so I can move on." Adds Branthover: "The days of the hiring manager being fearful for their job and not teaching you are more or less over."

Then, there's the challenge of retaining talented managers during a succession "horse race." "We had a situation where the company had two or three strong internal candidates for CFO, but they felt that those candidates were not quite ready yet. But they didn't want to lose any of them," recalls Charles B. "Chuck" Eldridge, managing director and head of the Financial Officers Practice at Korn/Ferry International. "What they've done is decide to seek a CFO who is very experienced and has a great list of accomplishments in developing people. So, personal development [of subordinates] will be a significant charge for this person.

"There is another case where three individuals are in the running." Eldridge adds. "All three of them know that, but because of changes in company and the marketplace, they don't know which one." With that, the company brought in Korn/Ferry to "help calibrate what they have internally, and see how [those candidates] stack up against what's in the marketplace."

Indeed, assessing personnel is a key ingredient in good succession, and companies often look for external help. Branthover says that in virtually every search her firm does, the company wants a full assessment of the internal candidates, not just the outsiders.

Internal Promotion Best

It's commonly agreed that succession works best when people are promoted internally. "But some companies have experienced such rapid growth that they may not have enough people to promote, or people aren't ready," Branthover says. "Or, even though they have a succession plan in place, because of special projects or other circumstances, the person who has been designated isn't right at that time."

"We had a recent situation where the CFO in a biotech firm was looking to move up in the organization," says Mobley. "He was eventually promoted to VP of operations. One of the tasks involved was cultivating him into larger role; the other was finding a successor.

"First, we looked organizationally at what was happening in the industry from a balanced scorecard perspective--looking at the overall marketplace and what was happening with the product and the company; looking at the customers and at increasing shareholder value, and from the employee perspective. [That means looking at] what exists today, where we're headed--positioning today versus tomorrow, identifying gaps, strengths, etc. Then it meant really digging into the organization to look at the incumbents."

Mobley emphasizes the importance of keeping sight of the business issues at stake in succession, not just personalities. "You can have the best-laid plans, but you need some accountability back to the business. It can't be done in a vacuum."

Michael Doyle, CFO at EasyLink Services Corp. in Piscataway, N.J., and a veteran of a number of companies, says he has seen succession handled in a variety of ways. The best experience he had, he says, was at PepsiCo Inc., where the human resources department had a very active role, and career development was mapped from the director level down. As a result, most major finance roles were filled from within.

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He says of the electronic transactions provider where he is now, "Here, we don't have formal succession plan, and that's one of the challenges with a small company. We've had several hires recently, and I've told them what we can offer is a richness of experience. At a large company, you can be moved to different roles to get different experiences. In a small company, you're telling folks that they'll get a range of experiences in the jobs they're in."

Doyle argues that the demands of compliance with the Sarbanes-Oxley Act have "changed the rules, and also changed what we need to look at. There is a tendency to try to [structure] development experiences as we are doing the work, and coach people along; I'm evaluating them in my head as we go. It's a little like refueling the plane in mid-air."

Korn/Ferry's Eldridge does see a continuing impact from Sarbanes-Oxley in the time that CFOs might take with potential successors. But there may be other issues as well. "Why didn't the CFO provide nurturing?" he asks. "Quite often, it was because most of these companies are fast-moving, and the internal candidates aren't often viewed as the solution" to a succession issue.

What's the role for human resources in all of this? It depends. Many large organizations, like PepsiCo, have highly sophisticated HR departments that are heavily involved in assessments and succession planning. Mobley says at smaller companies, the kind her firm works mostly with, "our clients are C-suite officers, often the CFO," she says. "The HR gaunt-let gets passed to them."

EasyLink's Doyle notes that his human resources group helps with recruiting--as do search firms, in some selected positions. "But on development and monitoring, [HR] really doesn't have a role."

More and more, consultants and specialists agree, succession is an integral part of the talent management process. "I work with a lot of startups, and it's amazing that people take [succession] very seriously," says Branthover. "Post-bubble, they're smarter about not wanting to hire again and again, and they're willing to spend to avoid that. It's a lot more than just running through people; it's about wanting employees to be motivated." Companies are also bench-marking their succession and training against peers, she says.

Succession "can't be a haphazard process," says Michael DiGiovanni, U.S. president for Swedish-based training firm Celemiab Systems AB. "Organizations really need to think about not only what is required today, but what the world is going to look like in five years. What skills will be critical for success?"

"It's being taken very seriously, and almost all my clients go through formal time on succession planning," says Branthover. "Senior-level executives are being asked for succession plans. Good succession is a very well-thought-out process that will make companies more successful."

RELATED ARTICLE: Adding Training to the Mix

Some organizations identify potential leaders and turn to outside providers for skills or leadership/succession training, or send them to management development schools or courses where they can see broader perspectives.

Celemiab Systems AB offers business simulations that have managers working on intense business-case type problems. Typically, says Celemi's U.S. president, Michael DiGiovanni, a company's human resources staff will identify these top performers and bring in Celemi for a two-day classroom instruction. Teams of individuals will compete against each other, actually running a hypothetical company and "making C-level decisions" that look out over as much as seven to 10 years, and tracking the financial metrics of their decisions.

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When finance people are on these teams, DiGiovanni says, "We tend to lift them out of their normal role, and put them in marketing or manufacturing." One client, Pratt & Whitney, uses Celemi strictly within its finance department. The training comes as the culmination of a two-year rotation program in which managers are moved around the company, he adds.

"The most successful companies are those that take up training internally and externally and provide coaching," and have junior people ready to move up, says Jeanne Branthover, a managing director at Boyden Global Executive Search in New York.

At Parsons Brinckerhoff, CFO Richard Schrader says that offsite training is regularly used as a part of the company's overall succession structure. Selected managers are "sent to intensive management evaluation programs, and others to courses at Duke or Harvard to get exposure to other people and disciplines," he says.

RELATED ARTICLE: takeaways

* Succession planning gets the most attention at the CEO level, but should be regularly incorporated at the departmental level as well.

* The planning should be deliberate and thorough. Experts say large companies with more resources tend to do a better job at this.

* Recruiters can be a useful resource in assessing candidates for succession, especially if the people have different skill sets and strengths.

* Training and management courses are widely used as tools to better prepare future leaders for new experiences and responsibilities.