If a crisis hits, is your C-suite ready?

“I would say it's still a much weaker area.”

So says John Kay, in discussing the challenging but critical area of succession planning, particularly when it comes to the C-suite.

The urgency of having a plan was reinforced recently after the murder of a U.S. CEO. Brian Thompson was shot and killed on Dec. 4 in New York City outside a hotel where his company, United Healthcare, was set to hold their annual investor conference. Since then, Luigi Mangione has been arrested and charged with the CEO’s murder.

The incident serves as a stark reminder of the high stakes of sudden leadership changes.

“I still see a lot of… boards really have not spent much time thinking about CEO succession as a critical business risk, and putting the energy into that [by asking] ‘What if our CEO were to leave? What if our CEO were to, let's say, be hit by the 649 bus? What are we going to do about it?’” says Kay.

While events like the one involving Thompson don’t transpire every day, and are terrible, senior leaders can become ill on short notice or be tapped for other roles and quickly move on, says Lisa Talbot, a partner at Torys in Toronto.

“So, it's really quite important, especially at the C-suite level, and for other critical senior leaders, that you've not only given some thought to who might be the right person, but you've really honed in on what the plan would be.,” she says, adding a good contingency plan is quite important to corporate governance.

At Redberry Restaurants, HR plays “a pivotal role in proactively identifying and grooming future leaders for executive roles,” says Kiran Benet, CPO. “Succession planning is a top priority, particularly as we navigate rapid growth in a highly competitive hospitality sector.”

Persistent weakness in organizations

Succession planning for the C-suite is critical to organizational stability and long-term success, yet it remains an underdeveloped area in many companies. In 2021, 56% of 580 HR leaders in the U.S. said they lacked a succession plan at their organization; the remaining 21% had a formal plan while 23% had an informal plan, found SHRM.

Why? Kay identifies two key challenges: breaking through to the board and managing internal reluctance within HR to discuss succession.

“HR has a huge role to play. And I think a lot of what I see is that it's not that HR is asleep at the switch by any means. It's more a question of… trying to break through and find a way to get on the board’s radar,” he says.

“Because HR often doesn't have that much direct contact at the governance level, it's difficult for HR to work through the channels to say, ‘Look, this is an issue we need to pay attention to.’”

Kay also notes that HR leaders may hesitate to raise the issue of CEO succession for fear of creating tension.

“I think there's a reluctance sometimes to want to engage in that conversation,” he says, citing concerns about how current leadership might react to discussions that imply their eventual departure.

In addition, there are “so many different things” preoccupying HR leaders, says Kay, such as recruitment and retention, critical skills, the labour market and mental health concerns: “This is one that can be challenging to put at the top… and have it as a core area of focus.”

Benet also identifies industry-specific hurdles.

“Succession planning for the C-suite presents unique challenges for HR due to the complexity of these roles and their significant impact on an organization’s long-term success,” she says.

“The skills and competencies required for C-suite roles are constantly shifting due to evolving market dynamics, technology advancements, and changing organizational priorities. Predicting future requirements adds another layer of complexity to succession planning.”

Planning for unexpected C-suite departures

Unexpected CEO departures require swift and decisive action. Kay advises organizations to bring in someone on an interim basis to stabilize the leadership while you search for a full-time replacement.

If an employer hastily decides to pick a successor, circumventing the cost of a formal search, “the risk you run is that you haven’t really given that person the full vetting they need,” he says, or gained a full understanding of the options in the market.

Benet says her company’s approach to contingency planning is an integral part of its broader succession strategy.

“Contingency planning ensures Redberry can seamlessly manage unforeseen leadership transitions, such as sudden vacancies or changes in business strategy, ensuring organizational agility,” she says.

A good contingency plan if a critical executive or C-suite member suddenly departs is quite important to corporate governance, says Talbot.

“Often it is the CHRO who [is] jumping in to ensure that that transition process goes smoothly, and people are getting up to speed as necessary when they’ve been thrown into a role on short notice,” she says.

But there are important legal and contractual aspects to consider, according to Talbot.

“You have to be careful that you're not making an offer of employment — you're letting them know that ‘In these circumstances, our current planning is that we would be looking to you to serve in this role on an interim basis.’”

Collaboration between HR and board

Talbot highlights the importance of boards in maintaining an up-to-date succession plan.

 “Any succession plan that involves the C-suite is going to engage the board, and the board should, through their HR committee, have a plan that they're updating at least annually, if not more frequently, depending on moves within the C-suite, to ensure that they’re not flat-footed,” she says.

If there isn't a proper succession plan in place, even outside of the C-suite, that can give rise to issues that would be important to the board, says Talbot, including business continuity and share prices for public corporations.

And she stresses the importance of collaboration between HR and the board in developing effective succession plans.

“HR, ideally, would be involved in driving that initiative, and whatever C-suite succession planning the board is engaged in would be part and parcel of a broader effort that HR would be running,” says Talbot. “The CHRO may have a better handle on the performance and ability of team members outside the C-suite than the board would.”

Kay emphasizes that HR’s collaboration with the board should focus on identifying risks and ensuring business continuity by asking “What are the things we need to have in place in order to be sustainable… to continue to operate a profitable business or a successful organization?” he says.

And if HR has a good relationship with the board, it should be discussing with them and senior leaders or executive committees the spectrum of things that affect their ability “to execute on strategy, execute on our ability to remain competitive in the marketplace, and in partnership with other leaders in the organization… help map out a rational response, from a risk and opportunity perspective.”

At Redberry, Benet describes HR’s active engagement with the board to align succession planning with organizational goals.

“HR ensures the succession plan reflects Redberry’s long-term vision and growth objectives by facilitating regular discussions with the board about leadership needs,” she says.

Internal vs external candidates

A key aspect of succession planning is deciding whether to prioritize internal or external candidates for leadership roles. Kay observes a bias among organizations to look externally for new leaders.

“It's the same thing — everybody says, ‘We want the unicorn… and so we're going to look outside for the unicorn,’” he says.

While external hires can bring fresh perspectives, Kay warns against neglecting internal candidates.

“It can be a real detriment if you… don't invest the time and energy to develop internal succession candidates… because you've basically just told your next-generation leadership they're not really wanted, there’s never going to be a place for them in the CEO’s office,” he says, which is not good for retention.

Talbot adds that internal candidates often play a crucial role in interim leadership.

“When you're dealing with a situation like we saw in the States last week, for a succession plan to work properly and to allow for an immediate transition of responsibilities, the candidate would have to be, I think in most cases, an internal candidate who would step up to be the interim on such short notice,” she says.

But balancing internal and external candidates for leadership roles is not easy, according to Benet.

“While internal promotions promote loyalty, engagement and continuity, external hires bring fresh perspectives and industry innovations. Striking the right balance often involves navigating sensitive organizational dynamics and stakeholder expectations,” she says.

Developing future leaders

At Redberry Restaurants, the organization’s approach to succession planning includes talent mapping, leadership assessments, individual development plans, and cross-functional experiences.

“We create individual development plans that address unique growth areas for potential successors, focusing on skills such as financial acumen, strategic decision-making and emotional intelligence,” says Benet. “We provide opportunities for high-potential leaders to rotate across departments or regions to develop a holistic understanding of the business.”

Identifying internal candidates with the right blend of “strategic vision, operational expertise and leadership qualities can be challenging,” says Benet, which is why it’s critical to nurture high-performing employees and provide them with exposure to cross-functional C-Suite team members.

Kay highlights the importance of creating a transparent but realistic path for potential leaders.

“If you over-promise, you run the huge risk of under-delivering,” he says, citing the importance of a talent management plan. “I think you have to say to people ‘There are always emerging opportunities — what we want to do is make sure that you, as someone who we've identified as a talented individual, have the skills and capabilities you need to reach that role.’”