Temasek Holdings - Essay Example

?Introduction Temasek Holdings (Temasek), the Asian investment house headquartered in Singapore manages investments in areas including banking and financial services, real estate, transportation and logistics, education, consumer and lifestyle products, energy and resources and engineering and technology. The company is facing serious issues in identifying potential leaders that can take up the responsibility of improving the value of its investment portfolios. This case raises the need to review the literature in the area of leadership transition and succession planning. Strong leadership is a very important ingredient in the success of an organization. A change in the leadership of an organization might result in changes in the organization structure, strategies, policies and the way the organization does it business. Moreover, with the movement of a leader from the organization, the close subordinates also move with the outgoing leader which might result in substantial change in the management of an organization. At the same time, it is important that the employees of the organization must relate to the new leadership. It is important that whenever there is a need to change the leadership of organization, suitable candidates are identified as soon as possible. For this, it is important to identify and nurture young talent in the organization. The transition to a new leader shall be smooth so that the employees do not feel uncomfortable under the changed leadership. Any organization will, for surely have change in its leadership and because of the significant changes undergoing during this period, it is important that the transition is managed in the best possible way. Hence it is important that the area of leadership transition and succession planning is carefully reviewed. This paper will analyze the already existing literature in the area of succession planning, its important and identify the best ways to manage leadership transition. The review will be analyzed in the context of the leadership change at Temasek. Literature themes and arguments Leadership succession and transition is a widely researched area in the field of organizational development. In the simplest of terms, succession planning can be defined as preparing for replacement of the key personnel in an organization. Often the area of succession planning is concerned with the succession of leaders. Types of succession planning The process of succession planning needs a thorough understanding of the strategy of the organization. There have been various models of performing succession planning such as ‘relay succession’, ‘horse- race successions’ and ad-hoc succession. While in relay succession, the leaving person identifies an individual, and then grooms the person, horse-race successions are more competitive in nature and the Board decides the successor amongst many candidates. An ad-hoc succession involves selecting the best possible candidate who is present at that particular point of time. In case, firms are not able to identify a potential successor, boards often appoint an interim leader who occupies that position until a permanent person is hired for the position. Of all the ways, relay succession is the most common type of succession planning undertaken by companies (Brickley et al., 1997). Relation between firm performance and succession planning Previous research has suggested that the performance of an organization is significantly impacted by the succession process adopted. More disruptive succession processes impact the performance of the firms negatively (Zhang and Rajagopalan, 2004). At the same time, the performance after a change in leadership is also impacted by actions of the successor and the internal and external situation of the change (Rowe et al., 2005). The success of a succession planning exercise depends on various factors such as involvement of the outgoing leader, sincerity of the performance review of all the candidates, accurate prediction of the talent need that might arise, and the consistency of the applicant values with that of the organization. Research has also pointed out on indirect impact of succession planning on various parameters including productivity and gross return on assets (Huselid, Jackson & Schuler, 1996). Inefficient succession planning also results in a deficit of internal leaders in the organization. Internal v/s external candidates Another aspect which is widely researched in the area of succession planning is whether an external candidate is appropriate or internal candidate is appropriate. Research has indicated that in cases where an organization is performing poorly, an external candidate is more effective than an internal candidate (Wei & Cannella, 2002). Research has pointed that hiring an external successor to a leadership position will be costly as compared to developing an internal candidate. At the same time, aligning the values of external candidate with that of the organization is another issue that the board has to take account off. External candidates also have to understand the people, the organizational culture and the working processes of the organization. Characteristics of an effective succession plan Although the succession planning process of an organization differs from those of other organizations, there are certain characteristics than a succession plan should have: Appropriate appraisal: In case there is more than one candidate who is vying for the top position, it is important that the existing leader objectively evaluates the performance of all the candidates. Meaningful development plans: Once potential successors have been identified, it is important, it is necessary to analyze their weaknesses and possible areas of improvements. The candidates then shall be trained to overcome those deficiencies. Clearly defined selection criteria: During the process of identifying the successor for a leadership position, it is necessary that the selection parameters for the position are clearly defined with a detailed description of the skill set, attitude and values that are needed for succeeding in that particular position. Wide array of choices: While it is important to have all the above characteristics, an organization will be successful in transitioning of leadership if it has a wide pool of potential leaders from whom to select. The more the choices, the better will be the chances of selecting the most appropriate candidate. For this, it is necessary that the board keeps identifying and developing potential leaders from within the organization as well as identifying external potentials. Employee involvement: During the process of leadership transition, it is important that all the employees of the organization should be kept in knowledge of the changes that are going to happen so that employees can relate and involve themselves for the change. Conclusion and Recommendations Based on the literature analysis, it can be concluded that the process of succession planning is a very important part in organizational development. An organization should have a well-thought succession planning strategy. It is the duty of the Board of Directors to identify potential successors to leadership proactively and groom them. The problem at Temasek is the absence of a new leader who can take over the position of Ho Ching. While an effort was made to replace Ching with Chip Goodyear, the exercise failed. This can be attributed to the absence of a formal succession planning process at Temasek. While Chip is an external candidate, it is important that he is aligned with the company strategy and values. At the same time, the transition should have been in such a way that the employees of Temasek are kept informed about the transition process. It is advised to Temasek that a formal succession planning process is developed and the company identifies potential successors to Ching. These potential candidates then shall be groomed with Ching at the head. This will enable the organization to manage the leadership transition efficiently. References Brickley, J, J, Coles, and G. Jarrell. (1997). Leadership Structure: Separating the CEO andjChairman of the Board. Journal of Corporate Finance, 3 (1997), 189-220. Huselid, M. A., Jackson, S. E., & Schuler, R. S. (1996). Technical and strategic human resource management effectiveness as determinants of firm performance. Academy of Management Journal, 40, 171–188. Rowe W, Cannella AA Jr, Rankin D, Gorman D. 2005. Leader succession and organizational performance: integrating the common-sense, ritual scapegoating and vicious-circle succession theories. Leadership Quarterly 16: 197–219. Wei, S., & Cannella, A., Jr. (2002). Power dynamics within top management and their impacts on CEO dismissal followed by inside succession. Academy of Management Journal, 45, 1195–1206. Zhang Y, Rajagopalan N. 2004. When the known devil is better than the unknown god: an empirical study of the antecedents and consequences of relay CEO successions. Academy of Management Journal 47: 483–500. Read More