Nick Miller, partner and head of the wholesale banking practice at Odgers Berndtson, explains how financial services firms are adapting to changing succession dynamics
As a regulated industry with significant economic impact, succession planning has always been a central concern for financial services firms. But over the past twelve months, ensuring leadership continuity has taken on heightened importance.
Regulators are pressuring boards to develop talent management plans that are more robust and go further into the organisation. They want greater assurances of succession with a deeper pipeline of talent.
At the same time, competition for talent is growing. Hedge funds and challenger brands are poaching senior leaders from incumbent firms, while 2023 witnessed the Great Resignation’s “executive wave.” In short, there is greater competition for a smaller pool of talent.
The scope of succession planning is also growing. An increasing number of digital, data, and technology leadership roles are now considered critical, adding an additional remit to the succession plan.
This is how financial services firms are adapting to these trends, and how succession planning is likely to evolve in the sector.
There are two succession tracks
To meet the growing need for leadership continuity in digital, data, and technology positions, financial services firms are developing an additional succession track.
Many now have a technical specialism succession track as well as a general management track. Technical specialist succession planning develops talent in specific technical areas critical to the business; unlike the management track, which prepares individuals for leadership in general management roles.
It is widely recognised in financial services that lacking a technical leader can now hold a firm back as much, or even more than, lacking a key senior management role.
Leadership retention is taking the spotlight
With strong competition for talent and high turnover in the senior leadership market, financial services firms are concentrating on retaining successor candidates.
Various methods are being implemented. Planned rotations and secondments keep senior leaders “interested” while helping them develop broader management experience by leading different business units. Likewise, providing successor candidates with leadership development, coaching, and exposure to the board means they feel valued, while also helping to build necessary leadership skills and experience.
Psychometric testing is also increasing. This approach evaluates a potential leader’s motivations and personal goals, and aligns them with specific leadership roles. It also means organisations have a better understanding of who is likely to leave and who is likely to stay – improving the accuracy of the succession plan.
A growing emphasis on skills
Financial services firms are relying less on methodology and focusing more closely on key skills. This means less reliance on management assessment tools like the nine-box matrix, and more emphasis on leadership potential and critical skills and behaviours.
These include self-awareness, emotional intelligence, cultural alignment, learning agility, commitment, and whether they possess a growth mindset. Firms are increasingly looking for these skills and using them to identify leadership potential.
This approach makes succession planning more individualised, resulting in a better fit between the candidate and the role. It also improves the leadership talent pipeline across the business, helping firms focus on levelling up the broader base of candidates, rather than just finding individuals to fit roles.
The future of succession planning in financial services
Financial services firms will spend more time on succession plans that encompass more roles and include additional management levels.
These plans will become more personalised, driving greater alignment between the candidate’s motivations and the role’s needs. Retention will become an increasing priority, with firms putting more time into retaining unsuccessful candidates who are often flight-risks if they don’t succeed to the role. Retention will also include the successor themselves; supporting them through coaching, mentoring, and development to ensure they succeed when in the new position.
What makes a successful leader is evolving rapidly, and to ensure they keep up with current leadership dynamics, firms will increasingly benchmark against the external market. Importantly, bringing external talent into the succession process enables organisations to understand how their talent, practices, and performance compare to the external market, revealing competitive strengths and weaknesses.
Succession planning will take more time, be more focused and broader in scope. While more intensive for the senior leaders involved, it will result in more successful leadership appointments across financial services.
