Schumpeter's notebook: The Kim Jong Il school of succession planning

Business and management

Schumpeter's notebook

North Korea could teach Western companies a thing or two
when it comes to planning for future leadership changes 

Succession planning

Oct 12th 2010, 18:15 by Schumpeter

HARDLY a week goes past without a new study about the inadequacies of corporate succession planning arriving in my in-box. Failing to plan for CEO-succession can throw companies into confusion when the sitting chief executive falls under a bus or gets caught having "Ugandan discussions" with a co-worker. Yet an astonishing number of companies, either out of incompetence, negligence or, more often than not, fear of the sitting CEO, fail to put a succession plan in place.
Here is an extract from a typical press release:

More than half of companies today cannot immediately name a successor to their CEO should the need arise, according to new research conducted by Heidrick & Struggles and Stanford University’s Rock Center for Corporate Governance. The survey of more than 140 CEOs and board directors of North American public and private companies reveals critical lapses in CEO succession planning.

"The lack of succession planning at some of the biggest public companies poses a serious threat to corporate health – especially as companies struggle toward a recovery," says Stephen A. Miles, Vice Chairman at leadership advisory firm Heidrick & Struggles and a global expert on succession planning. "Not having a truly operational succession plan can have devastating consequences for companies – from tanking stock prices to serious regulatory and reputational impact."

Stanford Graduate School of Business Professor David Larcker adds, "We found that this governance lapse stems primarily from a lack of focus: boards of directors just aren’t spending the time that is required to adequately prepare for a succession scenario." Professor Larcker is a senior faculty member of the Rock Center for Corporate Governance, a joint initiative of Stanford Law School and the Stanford Graduate School of Business.

It is humbling to contrast the slipshod amateurism of so much of the Western private sector with the disciplined professionalism of the North Korean Workers' Party. A full 39% of respondents to the Stanford/Heidrick & Struggles survey said that they had "zero" viable internal candidates. Kim Jong Il had a quiver full of arrows. Only 54% of respondents were doing anything to groom future CEOs. Kim Jong Il, the Dear Leader, who is in failing health, is orchestrating an elaborate succession process. He has established a "collective leadership", including his sister, Kim Kyung Hui and her husband, Chang Sung Taek, both seasoned veterans of North Korean politics, in case he conks out on the job. He has identified a long-term successor, his youngest son, Kim Jong Un. And he has begun to arrange a cavalcade of huge military parades to introduce his successor to the North Korean people. Take that, Hewlett-Packard.

Admittedly, not everything is going perfectly with the succession process. Kim Kyung Hui is said to be a heavy drinker. Kim Jong Un has been made a four-star general despite not having much of a military record, raising questions of nepotism. But it is as good as anything you can see in the West's private sector. Kim Jong Un has an impressively cosmopolitan CV, having been born in Vienna and educated in Switzerland. He has also accompanied his father on business trips abroad, most recently to China. The Workers' Party has stuck to most of Heidrick & Struggles's principles for succession management: for example, it has made sure that potential rivals have a "stake" in young Un's success, by threatening dissenters with death; and it has also provided the rising CEO with a knowledgeable "board" of advisors. Leading companies might well be advised to treat it as a "benchmark".

This is not the only area in which North Korea has outclassed the West. The whole country is essentially a family business, with the Kim dynasty branching out into a succession of demanding enterprises (nuclear bombs, arms dealing, extortion, terrorism). But the Kims have not suffered from any of the debilitating family quarrels that have convulsed almost any family business that you can imagine (think of the Gallos, the Ambanis, the Guinnesses, the Pritzkers and, of course, the Kochs). Clogs to clogs in three generations is the usual fate of Western family companies. Kim Jong Un will inherit a family business that is in most respects far more successful and sophisticated than the one that his grandfather handed over.

A pity about the mass famines, though.