The idea that succession planning is only necessary for the top executive is quickly going out of style at leading multifamily firms.
At United Dominion Realty Trust, company leaders know who's in line for the top 50 positions in the company—a dramatic increase from 2003, when the Richmond, Va.-based REIT only developed such plans for the company's top 10 executives. It's certainly a more broad-based approach than one might expect, but it's one that's supported by Tom Toomey, president and CEO of United Dominion, which owns and manages more than 70,000 multifamily units.
“The thing that I think people miss is that they tend to think of a succession plan as, ‘What's the replacement for the CEO?'” Toomey explains. But for a company to successfully grow, a plan needs to go much deeper than the top spot. Management teams and boards are coming to realize that “you have to have stronger, deeper, talented bench strength,” he adds. A deeper plan not only eliminates uncertainties down the road, but it encourages employees to develop their skills toward a specific career path.
In light of tighter corporate regulation, high-level executive departures—such as Michael Eisner of the Walt Disney Co.—and too many high-profile business scandals, many public multifamily companies are reevaluating and strengthening succession plans, going far deeper into the company hierarchy than in the past. It's a change for the apartment industry, which has typically focused more on property-level on-site turnover and retention issues, but it's a change that promises dividends.
“I don't have to worry about a disruption in the operation at any point anywhere,” Toomey explains. “Should something happen you can immediately go to the plan and say, ‘OK, we've got it covered.'”
Depth Chart So just how deep a succession plan do you need? “It's a function of the size of the organization and how many employees [you have],” says Steve Friedman, national director of housing for accounting firm Ernst and Young. “Every well-run company will have a succession plan that will run at least three layers deep into management.”
Some go far beyond that. About two years ago, multifamily powerhouse Equity Residential started a running list of possible successors for its top 250 people, from the CEO down to area vice presidents. “We look at it [succession planning] from an overall company point of view, not just one or two spots in terms of the CEO or the chairman,” says Bruce Duncan, president and CEO of the Chicago-based REIT, which owns more than 200,000 units in 33 states.
And Equity's philosophy is paying off in terms of employee retention and talent growth. “A lot of organizations don't spend the time to talk to employees about their goals, and help them reach the next level,” Duncan says. “To me, it's always paid big dividends.” And now Equity is beginning to take a closer look at possible successors for their regional manager positions. “They really are the next line of defense,” adds Duncan.
Gables Residential, a Boca Raton, Fla.-based REIT with approximately $230 million in 2004 revenue, keeps formal plans for the likely replacements of its top 25 employees but informally goes deeper, to the property manager level. “This is important because we need to be constantly preparing for growth opportunities,” says CEO Chris Wheeler. “Particularly in the client services part of our business, major contracts can hinge on our ability to appropriately staff the opportunity on short notice.”
People Factor After you decide how wide-ranging your succession strategy will be, it's time to select the likely candidates for those spots. A thorough succession plan will include candidates who can take over a job if an executive leaves immediately (because of an accident or corporate fraud, for example) or for a longer period of time. “Obviously those are different answers for many of the positions,” says Wheeler. “You may have some people you think have great potential, but you wouldn't make them that person today in a promotion.”
At Gables, possible successors aren't selected by the CEO or the human resources department, as one might expect. Instead, Wheeler asks all company officers, about 30 people, to suggest likely candidates and provide a contingency plan for their jobs. In these discussions and documents, Gables staffers tell company execs: “Here are the people that work for me that would be candidates for my position, here's [areas in which] they are strong, and if I die today, this is what I would recommend happen,” says Wheeler. The employees also note how to prepare their successors, which ranges from more exposure to real estate deals to leadership training courses.
Grooming employees qualifies as a significant part of succession planning, as selected candidates generally need to grow and develop their skills and experience before they are ready to tackle these higher positions. “The critical success factor [for such an effort] is to first sit down with the individual and acknowledge their skills,” says Toomey. “What skills do they have today? What skills are they going to need to move forward?”
At Equity, the company is answering such questions through an organizational development team that helps identify and train ideal matches for various positions. “We have a very serious process where we identify both who is a high performer and who is a high potential [performer],” Duncan says. While he realizes that high performers are critical to the company's success, “It's really those high potentials that we want to focus on,” Duncan says.
Employees have personalized development plans to help grow their skills and talents. Equity offers its employees extensive training and leadership programs, taught by both in-house and third-party professionals.
However, it's important not to make succession planning too stringent and formulaic. At Gables, Wheeler tries to keep the process informal with plenty of mentoring and friendly coaching. “The pendulum [at some companies] has swung so far that they are trying to put everybody into a computer program and say OK, you're an A track guy, and you're a B track guy, and you're a C track guy, and here's what we need to do,” says Wheeler. “We are not going there.”
Missing Persons What do you do if you don't have a logical candidate in line for a certain position? You start thinking about your options now, before you actually need to fill that spot.
To avoid a potential crisis, Wheeler constantly assesses the abilities of his team. “I want to make sure that all of my direct reports have the potential to become a CEO someday, and if I were to determine that one of them did not have the potential I may—and it's happened—make a change on that basis only,” say Wheeler.
Others try to evaluate an employee's future career options from the very start. When Mid-America Apartment Communities hires a new employee at the property management level, hiring managers often consider the person's future capabilities and contributions to the company. “The long-term thinking is that those same people may be good candidates for long-range succession planning,” says Nancy Roberts, senior vice president of organizational development at the Memphis-based REIT.
Living Document For a broad-based succession plan to work, you have to be willing to dedicate the time to creating it, updating it, and executing it. “People put together documents all day,” Duncan says. “The issue is whether or not you use them, you live it, you breathe it, you make it happen.”
And that's exactly what the Equity Residential president and CEO does. “This is something that day in and day out we spend time on because that's the only way you stay focused,” says Duncan. He revisits the succession plan at least quarterly and asks his senior management team how those high-potential employees are progressing.
At United Dominion, Toomey also finds the time, taking one day monthly to evaluate and update his company's succession plan. It makes for a crammed schedule for an already-busy CEO, but Toomey and his counterparts know the risks of letting succession planning slip. “What happens is you'll make bad judgments and decisions if you don't have a plan that has been vetted and thought out,” Toomey says. “You'll react to the moment, and that will cost you over the long run.”
People Planning
Hiring a person for one job—let alone determining the most promising candidates for numerous jobs—can be an over-whelming task. Here's what industry experts advise to make your succession plan, be it broad or narrow, a success.
- Don't choose people in a vacuum. Ask employees and supervisors their opinions as you evaluate candidates for likely jobs. You'll get the inside scoop on a possible successor's strengths and weaknesses.
- A succession plan will not work without dedicated resources. Involve your human resources group, and hire a development expert to help manage and grow your employees' talent.
- Ask your board what they expect from the succession plan. What should be the goals? How often do they want the plan to be updated?
- Invest your time. You must be disciplined in revisiting the plan every few months and checking on future successors' progress.
- Don't feel like all the planning has to happen internally. A third-party facilitator can pose hard questions you may not want to ask in-house.
Inside the Boardroom
Board members weigh in on succession planning.
While the CEOs focus on identifying their next waves of leaders, their boards of directors are also taking much more active roles in the succession planning process. Recent situations, such as the lack of a successor at a high-profile company like The Walt Disney Co., have upped board members' awareness about succession issues and their importance to a company's future.
“Directors are increasingly not looking for the CEO to come and say, ‘Here is the succession plan,'” says Ric Marshall, co-founder of The Corporate Library, a Portland, Ore.-based independent research firm that focuses on corporate governance. “They are looking to work with the CEO to put that together.”
That's the case at Gables Residential, where the board is most concerned with the CEO position and his four direct reports. “Some years ago, we spent very little time on this at the board level,” says Chris Wheeler, CEO of the Boca Raton, Fla.-based REIT. “[Today] the board is much more up-to-speed and involved with succession planning in the company. We sit down at every board meeting and talk about succession planning for some period of time.”
For leaders who may be reluctant with this level of board involvement, remember that succession planning is an ongoing way for a CEO to communicate with the board about the qualities he or she sees in his top people, adds Marshall. “The best CEOs have no problem submitting their work and their choices for senior managers to the board and openly discussing what they have done,” he says. “It's almost the ultimate test of a genuinely great chief executive officer, that they are perfectly comfortable talking [with the board] about what decisions they make.”
Typically, board members become most concerned about succession planning should a top executive leave the company without warning, says Dee Soder, founder and managing partner of New York-based CEO Perspective Group, an assessment and advisory firm for executives and boards. Today's volatile business climate—especially on Wall Street—has only heightened boards' traditional concerns. “Things change fast,” Soder says. “You can't keep up with the scandals, mergers, and other changes. The boards want to feel comfortable there's a plan in place.”