Article: Losing a leader – Is your organization prepared?


Losing a leader – Is your organization prepared?

Here are some of the implications of the loss of a key person in an organization and how talent leaders can plan for it.
Losing a leader – Is your organization prepared?

In July 2018, former CEO of both Fiat Chrysler Automobiles NV and Ferrari NV passed away following complications from shoulder surgery. He had been seriously ill for more than a year; however, the companies he led weren’t told of his condition until just a few days before his death. In late 2017, the leaders of railroad operator CSX Corp. and U.S. lender M&T Bank Corp. died on the same day; the former within a couple of days of announcing a medical leave.

One of the greatest tests for a business is how it would cope if faced with the sudden absence of a key business leader. Surprisingly, Stanford Business School research indicates this is a common occurrence – on average, approximately seven CEOs of publicly-listed companies pass on each year; of which 75 percent are sudden and unexpected. While cancer, heart attack, and stroke are the most frequent causes, automobile or airplane accidents and other incidents are also common.

Whether it’s an owner, director, or CEO, the premature death or extended incapacity of a crucial employee can severely disrupt operations and threaten the survival of the business both in the short and long term.

Immediate implications of the loss

When a CEO passes, there is undoubtedly a host of immediate business implications for any organization to deal with. For SMEs, sales on average drop 60 percent in the four years following the death of a CEO, according to Forbes. For listed companies, the loss of investor confidence could mean a share price plunge. One example of this was when the shares of computer chip-maker Micron Technologies fell by 2.8 percent on the day its CEO, Steve Appleton, died in 2012, as reported by USA Today.

Closer to home, the CEO of one of China’s largest mobile healthcare platforms, Chunyu Doctor, died of a heart attack on 5 October 2016. The unicorn startup was recently involved in Series D funding and was also pre-IPO, meaning 44-year-old Zhang Rui’s death came at a ‘critical juncture’. The RMB 1.2 billion IPO of the company ran aground, presenting a very real negative financial impact to shareholders and employees almost immediately.

Long-term side-effects

The fall of a key leader might send an immediate powerful ripple wave, not only to the organization's business stakeholders and on customer trust, but also have long-term repercussions on the employees of the organization.

A sudden absence of a CEO may spike off a chain of employee uncertainty within the organization. If not handled properly through official channels of communication, with immediate plans put in place to restore employee confidence, it might result in further harm to the organization.

After SurveyMonkey CEO, Dave Goldberg, died unexpectedly of head trauma in early May 2015, employees struggled with their grief. At the company-wide meeting after Goldberg’s death, all eight speakers broke down in tears at some point. Yet, while his employees and friends wanted their time to grieve, Silicon Valley was not waiting. According to the New York Times, recruiters for other tech companies started reaching out to SurveyMonkey employees to see if they would be interested in new positions.

To plan for the unexpected, most HR directors have now placed contingency measures for the loss of key persons firmly on their agenda. From a succession planning perspective, an immediate plan would be to appoint another CEO, but how many organizations are able to put that in place at short notice?

In typical cases, an interim CEO is appointed, who is a senior management member. This begs the question: do organizations have what it takes to ensure a clear succession planning program? Do they have suitable candidates to take charge of the organization when their CEO departs?

The candidates not only need to have the capability to take over the management of the organization but must also handle the repercussions that have risen due to the loss of a previous top executive talent. This includes intellectual capital, relationships with key customers, and competitive advantages that may have all disappeared in an instant.

Covering your key person

In the event of loss of its most valuable assets – its crucial employees – a Key Person Insurance policy protects the business. The policy is taken out by the company, not the individual, and compensates the business for financial losses that would arise if something unexpected happens to its key person or persons.

In the case of Chunyu Doctor mentioned earlier, the standout benefits of key person cover would have been to maintain investor confidence as the death of its CEO occurred right before the startup went public.

Unlike other business insurance policies, key person insurance does not indemnify the actual losses incurred – which is a commonly-held myth. Rather, it compensates the business with a fixed monetary sum to help offset the costs of those losses. This could include the time and effort it takes to recruit a worthy successor while managing public perception, loss of individual expertise, risk of losing key contacts, and a decrease in productivity until successors are fully established.

There are several approaches in determining the appropriate sum assured when calculating the insured amount and it’s also important to ensure that the payment limit is sufficient. One way to begin calculating the insured amount is to look at specific potential risk of the loss of a leader and the resulting financial repercussions.

By nurturing an effective talent management and succession pipeline, coupled with having in place a comprehensive key person insurance cover, businesses can ensure optimal business continuity in the event of unforeseen circumstances.

Read full story

Topics: Leadership, #Blog, #GuestArticle

Did you find this story helpful?



How do you envision AI transforming your work?