Everyone needs to know who will be next in line

Voya Investment Management likens successful succession planning to a waterfall.

When its CEO said in 2016 that he was leaving to take a position with another firm, the firm moved quickly and promoted from within, naming Christine Hurtsellers to the top spot.

That promotion set off a cascade of changes, with Matt Toms moving into Ms. Hurtsellers' former role as chief investment officer, fixed income.

"We saw a long waterfall effect — the CEO of the organization changed, was promoted from within from CIO of our fixed-income platform. That person stepped up and a variety of other people stepped up," said Michael Pratt, head of human resources for the investment business, based in New York.

"We probably hired to (the) analyst level" due to that preparation. "We were able to implement multiple succession plans without a lot of angst because we had plans."

Voya is not alone in recognizing the importance of succession planning to its business. Among the 69 firms named on Pensions & Investments' 2018 Best Places to Work in Money Management list, just 11 said they do not have a formalized program and/or practice for succession planning.

To craft succession plans and ensure that employees are ready to move up when positions present themselves, firms take a variety of approaches on both an annual and ad-hoc basis, including senior leadership meetings that plan for transitions as well as work shadowing and personal coaching to build skills of lower and middle mangers.

At Voya and Chicago-based Adams Street Partners LLC, for example, the work to iden- tify tomorrow's leaders takes place on an annual basis.

Carolyn Flanagan, partner and head of human resources for Adams Street, a private markets firm, said its process "drives future staffing and development priorities for a variety of key roles at the firm."

When it comes to the managing partner role and other executive-level positions, the firm seeks advice from its independent board of directors, made up of retired money management executives "who have overseen and taken part in succession planning, and are able to provide an experienced point of view on the best practices in the industry," Ms. Flanagan said.

Added Jeff Diehl, managing partner at Adams Street: "Additionally, our annual succession planning exercise holds senior managers accountable for crafting staffing plans and developing their high-potential team members with the expectation that progress is noted on a year-over-year basis."

That planning helped Adams Street make the transition with the onset in 2014 of a process to communicate that T. Bondurant French planned to step down as managing partner at the end of 2017. The firm's succession and communication process included a formal letter shared with clients, partners and friends of the firm in 2015.

"Adams Street commenced a comprehensive succession planning process that resulted in a successful multiyear transition. This process included a strategic evaluation of the firm's near- and long-term goals and the implications for leadership, internal interviews with key personnel, and input from the board of directors," Ms. Flanagan said.

Once Mr. Diehl had been identified as a successor, he first assumed the role of head of investments and then became managing partner in 2015, "with (Mr. French) continuing to provide advice and counsel as executive chairman, and then as chairman," effective January this year.

At Voya, the leadership team gets together for a day and a half late in the spring or early summer to talk through the top 80 roles at the firm, Mr. Pratt said.

The mindset among those attending is that "as a leader, part of my role is making the seat I sit in better for the next person, and getting the person behind me ready to step into that role," Mr. Pratt said.

The meeting allows different parts of the firm — across the investment office, distribution, and infrastructure and operations personnel — to look at employees "with a holistic view, and identify people that may not be in that workstream or team" for other roles, he said. "We also use that to identify people we want to invest in for longer — emerging talent we know we want to invest in as we feel (they) someday will sit on the succession planning for those top-tier roles."

Following those sessions, leaders have a "bunch of to-dos — it could be executive coaching maybe two years out. Maybe leveraging a tool or partner (for help, or) maybe if they are outside a team, give them (a) full perspective on our company."

Voya makes use of executive coaching and personality assessments "to help people understand themselves better, which helps them lead their teams better. And (we) try to better prepare them for probably the biggest jobs of their careers," Mr. Pratt said.

Mary Ellen Stanek, managing director of Baird Asset Management as well as chief investment officer of Baird Advisors and president of the Baird Funds, also recognizes the importance of succession preparations.

Ms. Stanek herself has been in her role as CIO for 18 years. Her predecessor held the role for 17 years.

"On the succession side, one of the most important responsibilities I have as CIO and leader of the team is really to develop that talent to continue to take on additional responsibilities so they are very well prepared for ultimately a change in keeper," Ms. Stanek said.

The firm tries to make that transition over "very long periods of time" and in a transparent way both externally and internally.

A good example of this came at the end of 2017 when Warren D. Pierson added the title of deputy CIO for Baird Advisors. More than five years ago the team was "very transparent with investors" about the eventual and planned ascension of Mr. Pierson to CIO.

"We increasingly get confirmation from our investors that they appreciate the transparency, the way we communicate with them, introduce the talent."

For other firms, succession planning gets external input and advice.

One example is the $219.2 billion California State Teachers' Retirement System, West Sacramento, which recently published its Leadership Development and Succession Plan for fiscal years 2018 to 2022.

The publication focuses on strengthening the leadership team, developing the talent pipeline and mitigating turnover risks.

"With senior leaders at or near retirement age, planning for the transfer and transition of leadership is a priority," said the publication.

"The CEO (Jack Ehnes) reports to the Teachers' Retirement Board and the TRB is responsible for selecting a successor," said Melissa Norcia, director of human resources at CalSTRS. "The TRB actively participates in succession planning for the CEO and CIO positions to ensure (CalSTRS is) succession ready."

She said succession planning for the CEO and CIO is on CalSTRS' 2018 to 2019 business plan and TRB's 2018-2019 work plan, "and succession readiness activities are taking place with the TRB." She said the TRB has board consultants that provide guidance on succession planning.

Baird has used an external consultant in the past for key leadership transitions and executive team building, which Ms. Stanek said was "additive." For the investment teams, however, work is done internally.

Boutique fixed-income specialist firm Pugh Capital Management Inc., founded in 1991 by Mary Pugh, CEO and CIO, and Scott Greiwe, president and senior portfolio manager, also has used external resources for advice when it comes to succession planning, Ms. Pugh said.

The Seattle-based firm started thinking 10 years ago about ways to ensure sustainability and longevity for the firm after the founders retire.

As part of that thinking, the firm expanded ownership via an employee stock purchase plan. More than half of employees are now owners, giving them skin in the game.

Pugh Capital also has created various committees "to further institutionalize both the investment process and business administration. Having various senior professionals chair different committees also gave the founders an opportunity to assess leadership talent while giving individuals an opportunity to grow outside of their daily responsibilities," additional comment provided by the company by email said.