Point of View: November 11, 2004: Succession planning must take priority

Increasingly, financial services organisations are conducting expensive searches offshore to replace senior executives when they resign. This is staggering considering the number of suitably qualified candidates available in Australia. Many have good international experience and could easily fill the vacant positions.

In addition, there has been a flood of highly experienced expatriates returning from overseas after the September 11 terror attacks in the US because Australia is still viewed as a ‘safe haven’. Many of these candidates are also being overlooked in this ‘grass is greener’ approach to replacing senior executive staff.

In most searches we conduct, there is an expectation from the client there will be at least one international candidate on the shortlist. This expectation stems from the view that attracting an individual back to Australia will provide a ‘higher profile’ hire than someone from the local market.

This can have a very negative effect on morale for staff that have invested in developing their careers domestically and may feel overlooked as a consequence. In many cases, these are the same organisations that claim to have succession planning programs in place.

While an external search is not necessarily a bad thing, it needs to be balanced with good succession planning programs and considered only if the skills and experience definitely don’t exist within the organisation.

It is clear many financial services organisations are not taking succession planning seriously and this has a number of consequences.

Organisations need only look at the cost of recruiting a new employee, as opposed to promoting from within, to make them scrutinise their succession planning program. The cost of recruiting an employee externally adds up to around 158 per cent of their salary. This includes any potential damage to client relationships due to the employee’s departure, the amount of time involved for the recruitment process and the cost of any training needed. It is important companies recognise how the ‘succession planning dividend’ directly affects their bottom line.

It’s also important to consider the effect an external search can have on existing staff. Automatically looking offshore, or even externally for a replacement, can often damage the morale of existing employees and may result in more senior executives leaving because of being overlooked.

Many may think an external search indicates that senior management does not have faith in them. This can be exacerbated if they believe there is not a huge differential in terms of experience and skills.

Mentoring is a critical part of succession planning and this seems to be seriously lacking within financial services organisations in Australia, perhaps because of a ‘she’ll be right’ attitude.

In the US and UK, for example, employees in investment houses are involved in structured mentoring programs, where their career is nurtured and they are guided through the ranks. This is essential to effective succession planning and needs to be drastically improved in Australia.

Many organisations have become so lean their whole focus is on revenue production leaving little room for developing other business and staff management or strategic skills.

In addition, while career progression may be available to the individual within the firm in larger offshore centres, their departure from the business in Australia would have a negative revenue impact and may not be supported by local management.

A symptom of ineffective succession planning is the emergence of the counter offer — when an employee resigns and is then offered more money and perks to stay. In some cases the amount of money offered is far in excess of the original package and begs the question, how can an employee be worth one thing one day and something considerably more the next? If the company had a good succession plan in place there would be no need for this last-minute desperate bargaining that leaves a bad taste in everyone’s mouth.

Candidates should be aware that accepting a counter offer is very bad for their reputation in a small market like Australia’s, especially given the amount of time and effort put in by senior management to attract key staff members. Money is never the only reason people stay in a job and the other circumstances that led the individual to look elsewhere remain.

For succession planning to be successful, it is critical there is ongoing internal benchmarking against the external market. The benefits include ensuring your current team is performing as effectively as your competitors and that when a key employee leaves, a quick assessment of the quality of existing talent versus external talent can be achieved and an informed decision on promoting internally or searching outside the organisation can be made.

Catherine Andersen is managing partner, financial services, at Highland Partners.