Gerry McDonough – The Value of Successful Succession Management

Connect with Gerry:

• 

Connect with Dwight:

• 
• dwight.brown@salary.com

Connect with David:

• 
• 
• david.turetsky@salary.com

 

Podcast Manager, Karissa Harris:

• HRDataLabs@salary.com

 

Production by Affogato Media

Resources:

• Ankura
• HR Data Labs Season 4 Episode 22

• “86% of leaders believe leadership succession planning is of utmost importance—only 14% think their organizations are doing it well.”
• “All too often organizations think it's up to the manager to determine a succession plan for their direct reports. That's a little backwards, right? It's got to be a two-way street. . . . It's up to those team members to [think about their career aspirations].”

Announcer: 0:02

Here's an experiment for you. Take passionate experts in human resource technology. Invite cross industry experts from inside and outside HR. Mix in what's happening in people analytics today. Give them the technology to connect. Hit record for their discussions into a beaker. Mix thoroughly. And voila, you get the HR Data Labs podcast, where we explore the impact of data and analytics to your business. We may get passionate and even irreverent, that count on each episode challenging and enhancing your understanding of the way people data can be used to solve real world problems. Now, here's your host, David Turetsky.

 

David Turetsky: 0:46

Hello, and welcome to the HR Data Labs podcast. I'm your very hoarse host, David Turetsky, along with Dwight Brown, our co host Hey, Dwight, how are you?

 

Dwight Brown: 0:56

I'm good. How're you doing, David?

 

David Turetsky: 0:57

Obviously not well. We have with us a friend and a brilliant guy, and you're going to hear from him today. He is the leader of the advanced human capital practice at Ankura Consulting Group. His name is Gerry McDonough. Gerry, how are you?

 

Gerry McDonough: 1:15

I'm doing well, David and Dwight. Good to be with you today.

 

David Turetsky: 1:18

Good to have you.

 

Dwight Brown: 1:19

Great to have you here.

 

David Turetsky: 1:21

Gerry, give us a little bit of rundown about your background, and how you got to this point.

 

Gerry McDonough: 1:26

Yeah, thanks, David. So appreciate your generous introduction. So as you mentioned, I lead the advanced human capital practice with an Ankura. Ankura is very diversified expert services firm. I lead the HR practice within it. Came to Ankura a via acquisition about five years ago. And prior to that ran my own human capital consulting firm for 23 years prior to that, really dealing with a whole range of human capital issues from organizational design and culture formation, integration in the cases of M&A, leader and executive development and succession.

 

David Turetsky: 2:01

So you know what you're talking about, and we're gonna dive into one of those issues today. But before we do, Gerry, what's one thing that no one knows about you until now.

 

Gerry McDonough: 2:12

Oh, interesting. So David, you're putting me on the spot. So let's see, the safest one I would say would be that I'm an amateur historian, I'm just drawn into American history, particularly, my dad was in World War II and wrote his memoirs, and which have subsequently been submitted and accepted to the Library of Congress. And I think I got drawn through his interest in history and that expanded into just early American revolutionary and Civil War history as well, based on where I lived in Northern Virginia prior to living where I live now in Charlotte.

 

David Turetsky: 2:46

That's crazy. That's wonderful.

 

Dwight Brown: 2:48

That's incredible.

 

David Turetsky: 2:49

And I'm gonna actually try and look into your dad's memoir, could you give us the link to it so we can have other people be able to have access to it?

 

Gerry McDonough: 2:57

I'd be glad to. I'll shoot it over to you. Yeah.

 

David Turetsky: 3:01

So today, we're going to talk about a fascinating topic, which is looking at succession management from the value perspective. And we're going to look at it from moving from convention, or what we've been doing so far, to accelerate value for the business. So Gerry, let's get to the first question. The first question is, because if we if we look at the topic for today, it talks about the move away from what people might think of as being conventional succession management. So what are the issues? Or let's call them inadequacies of how we do it today, beyond just the conversation over lunch with a napkin, what's really going on from your perspective? And what are these issues? And we'll get into how we fix them later. But what what are the issues?

 

Gerry McDonough: 3:59

Yeah, so I think, in the most straightforward way, convention is not working, you know, when you look at, you know, my experience, and also just the research finding, we're constantly looking at, you know, trends in the space and just most companies are not prepared. They're unprepared for an executive succession. And this is beyond CEO, all C suite and even below that, in many cases, only 54% of public companies are actively developing CXOs successors. 40% of companies report not having a single internal candidate to replace the CEO should he or she leave.

 

David Turetsky: 4:36

That's amazing.

 

Gerry McDonough: 4:37

You look you know, more deeply into it. You know, while 86% of leaders believe leadership succession planning is of utmost importance, only 14% think their organizations are doing it well. You know, as you observed, back of the napkin, it's mostly, you know, a haphazard process in many organizations and you know, 35% of organizations adhere to a formalized succession planning process. Only 35%. You know, then you get to some of the failed situations and you just look at the economics around that. Forget about, you know, beyond just the tremendous disruption of turning over CXO in a short period of time, the direct cost of replacing a failed executive is close to 10x, his or her salary. And when you look at large companies that

 

David Turetsky: 5:21

Wow. underwent, let's call it a forced CEO succession would have generated $112 billion more in market value in the year before and the year after their turnover. That's Those are real numbers. Sorry. I mean,

 

Dwight Brown: 5:37

That incredible. Yeah.

 

Gerry McDonough: 5:39

So you know, both the disruption side, which is maybe a little more subjective, but the you know, the economics of it are just too stark to to avoid.

 

David Turetsky: 5:48

You'd imagine that that gets the vision of the board, and the board looks at or should be looking at that saying, Gosh, are we doing it? And are we doing right? And have we not set the expectation that this is something that we need to come to the table with?

 

Gerry McDonough: 6:05

Yeah, it's very true, more and more, although still, I think a little too slowly, it needs to be accelerated executive succession and having a cogent plan and process for looking at it as a as a real risk factor to the business. That's starting to happen, you're seeing, you know, we're working with more and more boards on on that particular agenda. And it's really beyond just, you know, the productivity aspects of it. But just the reputational risk and the real financial risk by not having somebody or having, you know, gaps or lapses in succession plan.

 

Dwight Brown: 6:39

Do you think part of that is just board competency? People just don't have the competency to know how to do succession planning, both at an individual level as well as at a board level?

 

Gerry McDonough: 6:52

Yeah, I think that's a great point, I do think, you know, they lacked confidence that there can be a systematic approach that is, you know, far more objective than what they've had been dining on to this point. So, you know, as they see what's possible, a lot of times, you know, what we're helping them do is see a bigger picture and what's possible, right? And once they see that, that more objective picture, then they say, yeah, that's that we see the lapse in what we've been doing to this point, it's, it's out of, and I say this, you know, kindly, it's out of ignorance, it's not out of, you know, just the lack of interest, they just need to see what's possible. Once they do they say that's, that's a dial on our dashboard as a governance team, a board that we need to be looking at.

 

David Turetsky: 7:38

And there have been some pretty famous examples of the good that succession planning can do like Apple, and maybe the not so good. Like the length of time it took Microsoft to come up with a successor to Ballmer, of course, they found a wonderful CEO. And he's been wildly successful. But I think it does show or shine a spotlight on what it does to share price and what it does to confidence, like you mentioned, and it should be that kind of cautionary tale for those boards, to kind of get on board as to, pun intended, for kind of the good practice there.

 

Gerry McDonough: 8:19

Yeah, that's, that's absolutely true. And as I said, I think, you know, there is an evolution here, it's slower than it ought to be in, in our opinion, we're seeing, you know, more turnover at the top. So that becomes just a more fundamental challenge that's ongoing. And it needs to be built into the cadence into the whole system of governance and risk management for companies.

 

Dwight Brown: 8:43

Make sense.

 

David Turetsky: 8:44

I would imagine that I mean, if I were on a board, I'd want to see it quarterly. But that, again, I'm the HR guy in the room, and would probably be pushing for those kinds of things.

 

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David Turetsky: 9:06

So Gerry, let's go to the next question. You've talked about some of the problems, but what are the pragmatic improvements we can make to make succession management more effective?

 

Gerry McDonough: 9:17

Yeah, good question. So I think there's some dramatic improvements, which maybe I'll touch on, but frankly, they're just some discipline, you know, more regular cadence, systematic kind of attention to detail. That's more fundamental, but is essential. So I think, you know, just building a succession talent management plan, and building that into the normal cadence of the business, the whole business cycle. You know, our clients that we work with, they they've adopted, typically what we call S sessions, which are you mentioned quarterly, these are not quite as frequent as that but every, twice a year where we come together with the executive team and other critical people to really look at the state of succession management, not just, you know, C plus one or in the executive suite, but deeper in the organization. So, really just making time, which sounds so simple, but it's, it's very difficult for organizations to do that with, you know, a systematic cadence. So very simple, just making time and doing it on a on a routine basis, scheduling it into the business cycle, and bringing the attention that you need too in that. I'd say the other thing, which is not really rocket science around this, but it's it's pragmatic and needs to be practiced. And you mentioned it at the outset is really looking at succession deeper in the organization, not just c plus one. But you know, we advocate for probably top 2, 3, 4 bands of management structure, because there's lots of value in those ranks. And beyond that, obviously, but disproportionately a lot of value can be created or lost in those top three or four bands.

 

David Turetsky: 10:55

Yeah, I mean, we're talking about lots of intellectual property that could be walking out the door, without having, you know, that backup, and without having those strong potential future leaders be identified to fill those roles. But at what point does that get to be exhausting? You know, how many are we talking about? Because trying to fill a role means, you know, maybe you have two or three candidates. And some of those candidates may or may need some attention, some some skill based trainings, some on the job training, maybe some stretch assignments? At what point? does this become exhausting for not just the board, but for the HR team? And how can they get around that? How can they fix that?

 

Gerry McDonough: 11:41

You know, if it's an exercise, it gets boring, really fast. If you can really link it to value creation, it's usually pretty staggering, what you can create not as a rear guard kind of risk management action, but really, how do you create value through? And here's where, you know, the approach that we advocate is probably, you know, a little more dramatic and beyond just, you know, cadence and attention, it's, you know, what, what are the pivotal roles that create disproportionate value, you know, throughout the top echelon of an organization, top three, four or five bands? And that really, it streams from okay, what's our business strategy? What are the differentiating capabilities, we absolutely need to activate that strategy? And then what are the pivotal roles needed to do that? And, you know, typically, you come up with about 1 to 3% of the total workforce, have had these huge value creating roles. And if I'm a new CEO coming in, that's where I want to focus my time. You know, no company can afford to have A player, so called A players in all of their roles. So the approach that we advocate for is really a role first approach. What are the roles that create disproportionate value, and then you really can't afford not to have A players in those roles.

 

David Turetsky: 13:08

So if we look at that population, isn't there a rewards component to this, where it's not just about the roles, and how we're identifying the successors, or the successors to those roles, but also, there's a skills component to them, where we need to train them, give them on the job or give them stretch assignments, but also, the rewards component is maybe giving them some handcuffs, like some restricted stock or something beyond just non disclosure, non compete some methodology of retaining them through rewards, potentially?

 

Gerry McDonough: 13:44

Yeah, I think total rewards becomes, you know, critically important in terms of locking them in and, you know, incenting them in ways that have them looking, you know, at adjacent parts of the business, not just within their own P&L, for example, in a larger organization, ensuring that they're really seeing the whole playing field of the business, which is, that's where it's in the white spaces, often between business units and other functional areas where lots of value can be gained or lost. And so, you know, helping them have the peripheral vision to see across that which when you have A players in the right roles, that's just kind of part of who they are. And that's, that's, that's what, you know, we need to be looking for in those roles.

 

David Turetsky: 14:30

So you're basically talking about breaking down silos between these roles to make sure that they can foster the ability to develop and have those blinders off. So yeah, if they get the wider role, it's not like they're being newly introduced to an entire company. You don't have to introduce a bunch of baggage. All of that comes along for the ride.

 

Gerry McDonough: 14:52

Yeah, that's, that's absolutely true. You know, and I think, you know, the kind of a golden thread of this whole process is and sequence matters. I would say that's that's what's, you know, another key takeaway and key learning for us is the whole sequence matters. So what's the strategy of the business? What are the differentiating capabilities? What are the pivotal roles within those capabilities? Then then assessing only then talent quality, I think that's when you're in a position to say, this is the kind of talent we need to occupy that pivotal role, which links upstream to the business execution. And then the key thing that's often overlooked is once we know we have A players in those really critical or pivotal value creating roles is unleashing that light allowing the organization has to re engineer the role in some cases, to get a full measure of value created, what does that come across as? Often it's really just saying yes to that A player in that big value role, which is more decision rights, more budget, more discretionary budget, you can do that when you have an A player in this pivotal role. So

 

David Turetsky: 16:04

Is value equally distributed with with talent?

 

Gerry McDonough: 16:09

That's a good question. I would say, not necessarily, I think, you know, at different levels of organizations and different assignments. You know, we had a asset management company, we had a person who was identified through this process that was four levels deep, you know, the CEO didn't even know him. He was in Asia, and he was responsible for a huge portfolio of real estate there and was a huge value contributor. Alright, so A had to be retained, there was a little bit of a flight risk there, B was kind of frustrated by the lack of authority, he had to even create more value. So kind of bringing that into the light of day. It didn't take much convincing. I mean, it's obvious once once that's brought to the attention of the executive team, it becomes pretty clear what actions need to be taken to not only retain but to more highly motivate what was obviously in A player in a high value role. But it was not it was not a C suite role. Right. It was it was three levels deep in the organization.

 

David Turetsky: 17:16

Wow. So Gerry, why would we stop at the first two levels below the C suite? Why would we go deeper to find value in the organization?

 

Gerry McDonough: 17:26

Yeah, very interesting question. I think so the answer to that is you should not stop. Most, most organizations are most interested in the top two or three bands. But when you get into an accurate way of of identifying value by roll across an entire organization, think of it as value creation under a bell curve, we've been talking about the right tail of the bell curve, super high value creators, then you have the middle of the bell curve, and then you have the left tail of the bell curve, that's, that represents great opportunity as well, particularly in distressed times. Because now you can start to take action on creating value. But you know, when you when you think about downsizing, how is that done typically today, often with a meat, what I'll call a meat cleaver approach. It's not very, it's not very surgical, it's not very scientific, it's let's take 10% out, right?

 

David Turetsky: 18:22

And might be the best 10%

 

Gerry McDonough: 18:25

Yeah, it could be the best 10, or it's a it's a heavy marbling between, you know, bad 10 and good 10. So once you profile this, you know, under a bell curve, you can you can also focus on the left tail, which is how do we, how do we surgically remove costs and, and create value that way?

 

David Turetsky: 18:46

I think what's fascinating, though, about the left hand side of the of that curve, or the lower end of the curve is that there might be opportunities, we had hired these people with big hopes, potentially. And there might be opportunities to put them in different jobs or reskill them into being into other things that fit them better. And the cost of replacements being so high, especially now, that cost management may be a different equation, even from chopping off the left hand side of the of the curve. So to me, you have to also look at what are the skills needed in the organization and do that assessment on who is down at the bottom of the curve, and see if potentially, we can move them and see if it changes their value?

 

Gerry McDonough: 19:30

Yeah, you're absolutely right. And that's,

 

Dwight Brown: 19:33

Makes sense. that's we've seen it one example. Obviously, I won't say

 

David Turetsky: 19:34

We've been advocating that for a long time the name, but basically, the workforce composition was about doing the assessments, reviewing your workforce composition, and a year and a half behind the strategy. The business the then re skilling as a as a different business strategy than strategy had changed, right? But they hadn't drawn that thread through what's the workforce composition, key roles, you know, and talent in those roles. And so it was by no fault of the left side of the bell curve, the people in that it was it was there was just lack of connectivity between a change strategy and the new demands of the workforce. 80% of that workforce on the left left side of the bell curve, could be reskilled and re equipped to do the jobs necessary to connect to strategy execution. They just couldn't see it. So yeah. And that's, that then becomes the backbone of a, what we would call like a really strategic workforce planning process that works. just doing what's easy. Which is just lopping off that left side with the cleaver. Yeah. I guess the other question I want to ask you about going down into those other levels of the organization for a succession: You're talking about seeing them as candidates for the higher levels? Or are you advocating for actually doing succession planning for those lower levels?

 

Gerry McDonough: 21:11

Yeah, I think some form of talent management plan should be, you know, should be just part and parcel of what how the organization does business. Obviously, the top of the organization, there's, there's more opportunities, sometimes more risk associated with departures and such. So the investments honestly are, you know, targeted more towards the top of the organization, That said, you know, we would we would advocate for having some sort of a succession plan, talent development plan, you know, extend throughout the organization.

 

David Turetsky: 21:44

And you would start with those who have the highest value creation, and then work your way down that list, correct?

 

Gerry McDonough: 21:50

That's right. In fact, by doing it at the top, we we tried to create clients self sufficiency, and doing it further down the organization. Once they've been through it, then they have a sense and an experience of having gone through it and are better equipped to be able to move it down the organization to their teams. And below that.

 

David Turetsky: 22:11

Is there a price or a tax that though that gets created on that process? And it starts to I don't know whether there's a technology issue a data issue, a management issue, a governance issue, how do they maintain those succession plans affordably? I know you mentioned before that this isn't a once a month, this isn't a once a quarter is probably twice a year. Right? It seems like that would be high high taxation, to keep drilling it down throughout the organization. If it's a if it's a more frequent basis, right?

 

Gerry McDonough: 22:46

Yeah, yes, good observation, I think again, there is, you know, a considerable investment at the top of the organization to create the system and perpetuate it and maintain it on a cadence and link it to the business plan and strategy. Further down the organization, let's call it succession planning lite? It's, you know, there's, there's some really important things that can be done and accomplished. I think there, what we try to do is, is move the responsibility for succession planning a little bit more toward the employee themselves, right? It's where the employee is obligated to understand, okay, what are the possibilities within my organization? What do I aspire to? What are my hopes, dreams and aspirations? You know, all too often, you know, organizations think it's up to the manager to determine a succession plan for my direct reports. That's a little backwards, right? It's got to be a two way street. Obviously, the manager performance manager needs to understand each and every one of the members of his or her team. But it's up to those team members to you know, to put some wood in the fireplace before they get heat, right? Which is let me think about my career aspirations. Let me think about, you know, my hopes, what I want to accomplish here, what's possible, and then have a good conversation that's, you know, a bilateral conversation as opposed to one way.

 

Dwight Brown: 24:10

Yeah, and I, you know, I think that's the only way you're going to be able to get the buy in all the way through the organization is by, you know, putting putting it in front of the employees and giving them the the reins to help guide that process too.

 

Gerry McDonough: 24:26

Yeah, absolutely.

 

David Turetsky: 24:27

I think though, Gerry and Dwight, I think one of the problems is transparency. And we've been advocate for transparency a lot, but a lot of those employees don't know what exists beyond their four walls.

 

Dwight Brown: 24:39

Right? Exactly.

 

David Turetsky: 24:41

They can't break into looking at careers around them, when there's nothing in front of them that says I'm allowed to do that. So it does require some empowerment, and some conversation between leader and employee. About here are the possibilities. Here's what you should be shooting for. And here's how you go about doing that. Because otherwise, you know, and I've been I've been a victim of this in the past, and I think a lot of us feel this way is that when a manager has a really great employee, they have a shackle a hold on them, they don't want to let them go. And they don't allow them to know about some of those other really cool development opportunities or areas of focus that could lead them to a better career in the company. Because God forbid, we have to replace that person.

 

Dwight Brown: 25:28

Right, right. I think I've I think of all the times when you would see a key leader replaced, whether that was at the manager level, or at the C suite level. And there was sort of this, this feeling of surprise that everybody expressed, you know, nobody knew that that person was being groomed for the position that there was any sort of succession management and just kind of came out of the blue. And as long as people think that there's a, there's a team smoking pipes behind, behind the door, you know, making these decisions, but not telling anybody. It's hard to get any sort of succession management going when you've got that dynamic.

 

Gerry McDonough: 26:10

Yeah, and that's your you're absolutely right, that transparency is so important. You know, we have this thing called Career Nexus, which is really designed to create those conversations between performance manager and direct report, like what's possible around here, what's not possible, let's be practical about your background, your training, your education, what's required in these new roles. And let's also be clear about what the organization needs, right? And let's find the the nexus in that conversation. That's really the substance of what, further down the organization, frankly, it's, it's useful at the top of the organization too but further down the organization's understanding what that point of Nexus is, because that's really where, you know, I can then as performance management, design opportunities, stretch assignments, project assignments, training, you know, outside, educate, whatever it may be, it all lives in that nexus. Yeah.

 

David Turetsky: 27:11

So Gerry, we've talked a lot about the problems with succession management today. We've talked about things that can be done to improve them, especially in terms of visibility, especially in terms of process. And we've also talked about how we can look at the entirety of an organization and start looking at lower levels, and seeing what the opportunities are there. Is there anything else that we wanted to kind of cover before we end today?

 

Gerry McDonough: 27:39

You know, I would end with you know, I'm a huge fan of organizational culture, it's an often overused word, but I think the the companies who do this better and are doing it better all the time, just embed this into the culture of the organization. It becomes normal, natural, it becomes a cadence, it becomes, you know, not a fatigue process. But it's, it's an energizing process that people look forward to. And so it's got to become a really a cultural norm for organizations, as they think about themselves as whatever they may do, in industry or manufacturing, or retail, or tech, whatever they think of themselves. First and foremost, this people development companies.

 

David Turetsky: 28:23

I think it comes back to, you know, if I can put that in a different lens, making this part of the business process, not the HR process, because succession management has always been that heavy HR process. But if the business leaders run it, and they see it as theirs, doesn't

 

Gerry McDonough: 28:43

Yeah, it's so the way we describe that it's absolutely true. It's got to be line led, and HR support. Exactly. HR has a hugely important role to play. But it's not. It's really not the leadership of it. It's the facilitation of it. It's got to be line led. And that's that's the key differentiator, whether it's coming from the board or the executive team. Those who are successful with this, understand that, you know, this is a great, great way to drive substantial value also to mitigate risk. And it's a line. It's a line function.

 

David Turetsky: 29:17

Gerry. Thank you so much. You're wonderful. We really appreciate you being here.

 

Gerry McDonough: 29:22

It's my pleasure. Thanks, guys. I appreciate it. Hope you feel better. David.

 

David Turetsky: 29:26

Thank you. Thank you, Dwight.

 

Dwight Brown: 29:28

Thank you. Thanks for being with us today, Gerry.

 

Gerry McDonough: 29:31

My pleasure, Dwight.

 

David Turetsky: 29:32

And thank you for listening, take care and stay safe.

 

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