Succession Success

Any thought beyond the daily crush of deals and deadlines often falls to the bottom of a real estate executive’s to-do list. Still, imagine trying to accomplish all those everyday tasks without the support of a team. Many real estate companies will face just that pinch as Baby Boomers begin to retire en masse, leaving large gaps in management.Succession planning should be an integral part of any company’s strategy, whether large or small, public or private. Without an integrated, long-term view of its importance to the company’s success—and sometimes even its survival—an unexpected staffing change, particularly at the middle- and upper-management level, can catch an organization off guard and quickly drive it into crisis mode.The best succession planning is twofold. First, it identifies and secures talent, either internally or externally, to ensure continuity in key positions. It also develops and retains emerging talent for future leadership roles. In addition to the obvious benefit of the orderly transition of management, a promising succession plan uncovers talent gaps and opportunities, increases organizational transparency and reduces internal politics through thoughtful evaluation of a company’s entire human capital. Other byproducts include significantly reduced risk of an organizational crisis, deeper bench strength and a reduction in the costs of filling talent gaps and training new personnel on short notice.Traditionally, succession planning focused only on identifying employees for promotion to senior management, particularly to the CEO position, and did not consider the role that talent development plays in providing young executives with the skills they need to be considered for promotion. Indeed, U.S. real estate companies generally lack formal, long-term leadership-development programs.Managers can develop young talent through management-training programs for recent college graduates, including assignment rotations and hands-on mentoring by key executives, or by creating a culture of meritocracy through performance-driven compensation and promotions, as well as comprehensive performance reviews, including depth charts using performance-and-potential grids that identify employees that could advance to middle- and senior-level management positions.Developing a succession plan, however, is not enough. The program needs the right backing. Companies with the best intentions often fail in the implementation phase. C-level management must outwardly support new succession policies and make sure that they align with the company’s culture. Managers should also redesign the corporate organizational chart to support the revamped structure, both to institutionalize the changes and to positively promote them. They should choose a human resources leader who has experience in talent recruitment and retention, change-management and succession planning.Communication is crucial during the development process and as the plan progresses. Employees must understand why a plan is being established and view it as a positive development, not only for the company and its future but for their own careers. Talent development will help achieve this, as lower-level employees will view the plan more positively if it includes them. External support can also bolster confidence in the company and management, especially in the case of a public company, so management should disseminate a detailed timeline and clear directives to both internal and external audiences.Members of the board of directors can often provide advice based on their personal experiences as real estate or corporate executives. A designated committee of the board, usually the executive-compensation committee or the nominating and corporate-governance committee, should review any plan and the qualifications of potential successors to C-level positions. The committee should also conduct periodic interviews with senior management to determine their expectations and intentions, thereby eliminating surprises.The risks of failing to address succession vary, but they are all highly damaging to the company, its leaders, its reputation, its employees and, most important, its future. Inadequate planning can be disastrous in the face of a sudden resignation, death or incapacitation. Lack of preparation for the transition of leadership also reinforces both internal and external perceptions of mismanagement. Foresight and planning, however, can prevent these risks.Most senior managers do not consider the effects of their own absences unless their departures are planned, such as vacations. But executives should ask themselves regularly: “What would the company do without me?”It is best to have an answer at the ready.David Jacobstein is senior advisor for Deloitte & Touche USA L.L.P.’s real estate industry group.