CEO succession is one of the most critical decisions for any organization. However the quality of the CEO succession process is only as good as the quality of the leadership renewal and leadership succession process of the organization. Recent challenges in the global banking industry are causing the boards of leading global financial institutions to re-look their leadership renewal model.
This is the same in Nigeria. Interestingly, with more quantitative evidence that the short-tem focus of many banks on quarterly performance 2009 made them more vulnerable to the crisis, there has been a resurgence of the long term view of business leadership, of executive succession planning, and of executive succession management of international banks With high profile failures in leadership succession such as happened with the larger US and UK banks, many board directors and equity partners are increasingly worried about how executive directors are measured, that banks are more systematic in choosing the employees who are selected into the executive suite, and that fewer mistakes are made in getting to the CEO corner office.
In Nigeria, leadership succession is a little more complex for 3 reasons. First is the dearth of an abundant talent pool which makes compromise much easier in selecting a CEO successor. Second is the difficulty of using a clear transparent industry yardstick to measure CEO performance due to our under-developed capital markets which make the use of total shareholder returns (TSR) and changes in market capitalization (+/-MC) very difficult and unreliable. This results in the use of basic indices such as nominal gross revenue and profit, with their obvious limitations. Third is the cultural factor, a permissive sometimes benign performance culture, though changing, which makes the ouster of a poorly-performing CEO much more difficult than is obtainable in neo-capitalist economies.
Given these local peculiarities, local boards of directors appear to have adopted 2 practices to cope with the bad situation: fix short or untenured positions for CEOs to test their ability to deliver, and elongate indefinitely the tenures of high-performing CEOs to ensure the corporation enjoys maximum value from a CEO who is delivering consistently above-average shareholder returns.
The recent global financial crisis, the new corporate governance regulations, and the attendant pressure on CEOs to deliver tangible value will inevitably raise questions for bank boards in the latter category whose CEOs are far from the retirement zone and are delivering exceptional value hence their boards would rather have them stay than leave.
Based on our first-hand experience, to succeed in the new dispensation, many Nigerian banks will need to re-look their leadership renewal model with a view to evolving a model which generates a stronger leadership pool. To survive in the new reality, banks would have to move from the current model of ‘succession planning’ to ‘succession management’. Even though many Nigerian banks boast of clear succession plans, from our experience, very few Nigerian banks have robust succession management practices. Whereas the bank succession plans have typically focused on identifying back-up, future or next-generation individuals for a specific function, dynamic succession management would focus more on creating and stocking pools of candidates with high leadership potential in addition to ensuring that the key people are not just identified for their future functional roles but also developed for cross-functional future leadership positions in case of a major industry discontinuity. The key difference is that dynamic succession management would be less job-based, less functional in orientation and straddle all layers of the organization.
One key question which should be asked when entering into a meeting room of a leading company’s executive management team, is “If your entire executive leadership team of executive directors, including the group managing director, and all your general managers were run over by a truck tomorrow, or hit by a lightning streak due to fault in your building’s insulation system, who are the people that would emerge as the leadership of your company?” Far-fetched as it may seem, several experiences from recent history suggest that the destruction of an entire team is not as improbable as optimists suggest.
In 1993, the entire Zambian national football team of 18 players including the national coach and support staff were lost in an air crash. The remarkable thing is that an entirely fresh team was assembled within months and this team still got to the finals of the Nations Cup.