Human Resource Executive Online, July 1, 2008, Tuesday

Human Resource Executive Online

July 1, 2008, Tuesday

Human Resource Executive Online

Succession Success

CHRO succession, long overlooked at many companies, is taking on much greater importance as talent -- and HR -- become essential to business success.

By Scott Flander

When it comes to planning its own succession, HR is often like the shoemaker's son. At many companies, HR plays a key role in choosing the next CEO, CFO and other top executives -- but when it comes to its own CHRO succession, the process is all but ignored.

"Sometimes, the shoemaker's kids go barefoot," says Mike Peel, the outgoing HR chief at General Mills, who has worked hard to prepare his own successor. "Why? I don't know. Why do doctors not take care of themselves? It's counterintuitive."

HR leaders, academics and others offer a variety of possible explanations, ranging from a lack of top talent in the pipeline to HR's second-class status at some organizations. But there is general agreement that, as chief human resource officers become increasingly essential to business success, the need for robust CHRO succession plans is more important than ever.

"To be effective, you have to know the business and you have to know the players," says Patrick Wright, director of the Center for Advanced Human Resource Studies at Cornell University's School of Industrial and Labor Relations in Ithaca, N.Y. "I could put someone from the outside into a company, but it would take them a year to fully understand its inner workings. That's a year of lost productivity. In a fast-changing, competitive world, you can't sacrifice a year."

Some companies do take CHRO succession very seriously.

As Mike Davis was emerging as Peel's heir-apparent at General Mills several years ago, for example, Peel took Davis out of his "comfort zone" -- compensation and benefits -- and put him in charge of HR for the Minneapolis-based company's entire U.S. retail business operations.

Davis was "missing some of the classic HR skills he would need to do my job," such as talent management and employee relations, says Peel, executive vice president for HR and business services, who plans to retire by the end of the year. "I wanted to round out his experience."

At IBM, Senior Vice President of Human Resources Randy MacDonald -- who has not announced any plans for retirement -- is preparing his eventual successor through what he calls "dual hatting." His top vice presidents at the Armonk, N.Y.-based company are given both staff and line responsibilities, which "enforces a natural collaboration and integration for the enterprise," he says. His vice president of recruiting, for example, is also head of HR for global business services.

And at Gap, Eva Sage-Gavin uses a combination of techniques to prepare the people who may one day replace her, including making sure they have exposure to the board of directors.

"The boards will often help select the chief human resource officer, and you don't want this to be the first time they're meeting them," says Sage-Gavin, executive vice president for HR, communications and corporate social responsibility at the San-Francisco-based company.

Those and other HR leaders say companies can no longer afford to treat CHRO succession as an afterthought.

Global competition, the complex regulatory environment and the increasing importance of talent development have all made it critical that potential successors to the CHRO have extensive technical expertise as well as business experience. But all too often, many HR leaders say, candidates for the top job have one or the other -- though not both.

The Knowledge Gaps

"The CHRO role is hard to get to," says Charles Tharp, president of the National Academy of Human Resources, based in New Canaan, Conn., and the former HR chief at Bristol-Myers Squibb.

Because HR leaders often spend their careers on either the business side or the technical side, they may have huge gaps in knowledge and expertise, he says. An HR executive in charge of a business unit, for example, may know how to deal with the application of a particular tool, such as executive compensation or employee engagement, but may not have a deep knowledge of how those tools were developed.

"You have to have enough understanding of the benefits world, of the training world, so you can set priorities and ask the right questions," says Tharp.

At the same time, HR leaders in a particular technical area often don't get exposed to the business side -- or even other technical areas.

"Once you're vice president of compensation, it becomes more difficult to become head of development or succession," says Tharp.

That's why it's so important, he says, that HR leaders "intrusively manage the careers" of their possible successors, to make sure they have the full range of experience and expertise.

"You don't wait for a job to open up; you make it open up," he says. "You find a job that suits them. You say, 'How can we make room?' "

Cornell's Wright says a good CHRO needs a combination of analytical skills, which help drive business, and intuitive skills, "to build relationships, understand interpersonal dynamics and manage the political and ego-driven processes that take place among top decision makers."

The problem is that, while HR has long been strong on the intuitive side, it has only begun emphasizing the analytical side and the importance of knowing the business during the last 10 to 15 years, says Wright. Those who began their careers then may still be five to 10 years away from the CHRO level, he says.

So who is available now? Only those HR leaders, says Wright, "who have taken it upon themselves to learn the business and learn how HR can add value to the business. One way or another, they understood that, to be effective, they would have to get those skills, so they got them."

But that's a very limited group, he says. "There are fewer good CHROs available than good CEOs."

Wright and Tharp have been trying to change that through a partnership between the Center for Advanced Human Resource Studies and the NAHR. In week-long programs held at the center, participants -- who have been nominated by their CHRO bosses as potential successors, or who have already been named -- meet with various CEOs, board members and CHROs, such as IBM's MacDonald and Bill Conaty, the former HR chief at General Electric.

"It's a focused discussion of what it takes to be a CHRO," says Wright. "Participants get an understanding of what CEOs and board members want, and how they perceive the CHRO's role."

HR leaders say that while good succession planning helps pick the best candidate, those who don't get the job can't be forgotten in the process.

"The challenge is, how do you create winners without losers?" says Tharp. "You've got to give people a reason to want to stay with the company."

Tharp suggests that unsuccessful candidates be given "new and challenging assignments so they feel they're growing." And, he adds, "You have to step back and say, why didn't [they] get the job? And if it's because they lacked the experience or lacked the functional knowledge, you give them an assignment that fills the gap, so the next time, they're ready." (See sidebar, Page 29.)

Support from Above

A good CHRO succession plan takes more than hard work -- it needs a commitment from the top.

"It all starts with the perception of the function by the CEO," says Conaty, who retired from Fairfield, Conn.-based GE last November after serving 15 years as senior vice president of corporate human resources.

If the CEO sees HR as little more than a "backroom support function," says Conaty, he or she won't put much time or effort into any CHRO succession plans.

"The perception is that anybody can do the work," he says. "You pull out your Rolodex, call your favorite search firm and say, 'We need another one of these.' "

Some CEOs, rather than working to build a CHRO pipeline, avoid all the effort by simply hiring an experienced HR chief from a smaller company.

That's discouraging to rising HR leaders, says Conaty. It sends the message, "You can only get so high in our company, because when the top job opens up, we're going outside," he says.

According to Conaty, that's never been a problem at GE, "where HR is viewed as a legitimate business partner" -- and CHRO succession is taken seriously. He began planning for his own replacement as soon as he took over the job.

"There's always the hit-by-a-bus scenario," says Conaty. "Every single year, I presented at least three candidates I felt could do my job."

In the last few years before he retired, things moved into high gear. He and CEO Jeffrey Immelt "really discussed the pros and cons of the four people I listed as my prime backups," he says. And he arranged for lengthy, one-on-one meetings between those four candidates and Immelt, so the CEO "could get a grip on what they might do with the function."

In addition, Conaty made it clear to the four that they were on the list -- not in a formal way, but more casually, as part of ongoing discussions of his plans and theirs. "It lets them know how highly they're thought of in the company," he says. "They're highly sought after, and you want to retain them."

John Lynch eventually got the job, and took over from Conaty after a six-month transition. Conaty says that, while the others "were equally competent senior HR leaders," Lynch, the first European appointed to the post, was "truly global in a company that now has more employees outside the United States than inside."

In addition, Lynch had in-depth experience in the financial-services industry, which represents half of GE's portfolio, and most recently was vice president of HR GE's healthcare business, which represents the largest and fastest growing industrial segment of the company.

"At GE, we treated it like a CEO succession, with the same kind of significance," says Conaty.

Preparing for the Top Job

CHRO succession has been just as important at General Mills, where the process has been less about choosing among candidates, and more about getting a single one -- Mike Davis -- ready for the top job.

Until relatively recently, Davis himself never really considered the prospect. He had spent his entire career in benefits and compensation, moving in 1996 from Stamford, Conn.-based Towers Perrin, where he led the compensation practice, to General Mills, where he became vice president of compensation and benefits.

Davis says it wasn't until about two years ago -- a year after Peel put him in charge of HR for U.S. retail operations -- "that I decided I liked the business, and could see staying in it." (Davis was subsequently named senior vice president of global human resources when it was announced he would eventually be taking over Peel's post.)

Early in the succession process, Peel had never really come right out and told him he was the heir-apparent, though "he kept changing up the things I was accountable for," says Davis.

Peel would say things like, " 'This is what you're going to need if you're ever going to succeed me.' "
Peel, meanwhile, had definite plans for Davis. Although there were a number of other highly qualified candidates, says Peel, Davis "separated himself from the pack because of his executive skills and strategic capabilities."

In his new role in retail operations, Davis worked closely with the presidents of General Mills units such as Yoplait and Big G cereals, getting heavily involved in talent management, employee relations, executive recruitment and "guiding the culture," says Peel. "These were functions Mike hadn't had much exposure to."

And Davis' exposure to company leaders was just as critical, says Peel. Too often, that element is neglected in the development of potential CHROs, he says. But a certain comfort level and set of skills is needed to work with CEOs and other corporate leaders.

Peel recommends that HR chiefs have their possible successor get that exposure by leading "a project the CEO cares about," and by making presentations at board meetings and senior-leadership team meetings.

Another way to get that exposure is to arrange for potential successors to be mentored by members of the C-suite.

If that doesn't happen naturally, ask one of the executives if he or she will take on that role, he says.

"Your peers are usually willing to do it, but they've got to be asked" -- even if it involves calling in a favor, says Peel. "I don't think you can leave a lot to chance on these development exercises."

Peel says that because of challenges such as globalization and changing workforce demographics, new HR leaders need to be better -- not just as good -- as the ones in place now. When he talks to other HR chiefs about succession, he says, many tell him, "I've got people who can do the job."

But when he asks whether the successors have the potential to do a better job than the CHROs do right now, "that's when you get the hemming and hawing." While that potential is "the standard we hold our line to," says Peel, "I'm not sure it's the same standard we hold ourselves to as chief human resource officers."

Former CEO Steve Sanger, who oversaw the succession process, says the company was "very purposeful about developing Mike's successor over a long period of time." Because Peel excels at strategic development, says Sanger, as CEO "I did not have to intervene."

In general, though, "I think the CEO's role in all succession is to ensure that there is a well thought-out plan," says Sanger, who left the job of CEO in September, and served as board chairman through the end of May. "The CEO bears some of the blame if you get to the point where there is a succession need and you don't have a candidate with the right experiences."

At General Mills, says Sanger, the CHRO "is on the same level as a CFO or a key operating business group." But, he says, "for that to work, the function has to work," and so it's crucial "how the people in the function are perceived."

Says Sanger, "I view people like Mike Peel and Mike Davis as outstanding business people with a background in HR. They are absolutely full business partners."

MacDonald, at IBM, says the importance of a good CHRO succession plan can't be overestimated. "The shareholder is expecting that the quality of the management team will be as strong as possible," he says.

In addition to giving his direct reports dual line and staff roles, MacDonald prepares them for possible succession in a variety of ways. He encourages them to be active in the external HR community -- through such things as policy associations and consortiums, and he asks them to represent him at meetings and task forces that he can't attend.

"Let's not forget the basics," says MacDonald, which include "continuous feedback and constant coaching, looking at what's working and what's not."

He expects them to mentor others and meet with clients.

And, he says, "I expect them to be on the road. I expect them to engage, to be high-touch with the management team and the employees." And not just in the United States, but in other countries where IBM has operations, he says. "I expect them to be where there are issues."

MacDonald says this rigorous approach has borne results. "I can offer a host of people as very strong candidates to succeed me someday," he says. "That's the most important thing I can give as I leave."

Working with the Board

At Gap, Sage-Gavin believes that, in addition to technical and business experience, there is a third major competency needed for those aspiring to the top seat: board experience. She's a strong proponent of getting her potential successors exposure to the board and its various committees, by attending meetings and making presentations.

"The only way to effectively prepare people is to give them early success," she says.

Although Sage-Gavin -- who has been CHRO for five years -- is not planning to leave anytime soon, she's keenly interested in the issue of CHRO succession. She is the chair of the Center for Advanced Human Resource Studies and plays an active role in its succession-education programs.

When a CHRO leaves a large company, one would expect to see two or three internal candidates ready to take over the job immediately -- but that's often not the case, she says. And so key questions CHROs must ask of themselves include: "What are we doing as leaders to get them ready? How do we improve the HR talent pipeline."

Like other HR chiefs, Sage-Gavin rotates her potential successors into roles that require technical expertise, such as in executive compensation and benefits, as well as roles that provide business experience, such as in attracting, developing and rewarding talent.

She also encourages her top people to be "lifelong learners," by taking part in academic programs and keeping in regular communication with HR leaders around the world.

In addition, she prepares her possible successors through "technical investment," sending them to programs such as Gap's weeklong business-simulation workshop, in which teams of executives form imaginary companies and compete against each other.

She also requires them to "demonstrate leadership" by running key HR initiatives, such as a program to inform employees about new healthcare options.

Cornell's Wright says efforts such as these make him optimistic that HR can truly prepare its own leaders.

"I see these CHROs and CEOs who are interested in building the CHRO pipeline -- there's a felt need," he says.

"And now we're beginning to get the infrastructure in place. CHROs are talking to one another about developing their potential successors. Everything is there for that pipeline to start filling."

But, he adds, "it's still a pipeline. It's not going to be filled tomorrow."

July 1, 2008

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