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In organizational development, succession planning is the process of identifying and preparing suitable employees, through mentoring, training and job rotation, to replace key players — such as the chief executive officer (CEO) — within an organization as their terms expire. From the risk management aspect, provisions are made in case no suitable internal candidates are available to replace the loss of any key person. It is usual for an organization to insure the key person so that funds are available if she or he dies and these funds can be used by the business to cope with the problems before a suitable replacement is found or developed.

Succession Planning involves having senior executives periodically review their top executives and those in the next-lower level to determine several backups for each senior position. This is important because it often takes years of grooming to develop effective senior managers. There is a critical shortage in companies of middle and top leaders for the next five years. Organizations will need to create pools of candidates with high leadership potential.

A recent example of sound succession planning is the case of how General Electric found a successor to its CEO Jack Welch. The Board of Directors engaged in a lengthy and systematic review of the potential successors prior to his retirement.

With the Sarbanes-Oxley Act of 2002, succession planning in the USA has risen in importance as a corporate governance issue.

A careful and considered plan of action ensures the least possible disruption to the person’s responsibilities and therefore the organization’s effectiveness. Examples include such a person who is:

• suddenly and unexpectedly unable or unwilling to continue their role within the organization;
• accepting an approach from another organization or external opportunity which will terminate or lessen their value to the current organization;
• indicating the conclusion of a contract or time-limited project; or
• moving to another position and different set of responsibilities within the organization.

A succession plan clearly sets out the factors to be taken into account and the process to be followed in relation to retaining or replacing the person.

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