Boardroom directors are exposing themselves to a massive risk – dubbed the ‘Sorrell effect’ – by not having executive succession plans in place, warn senior leadership experts.
The abrupt exit of Sir Martin Sorrell from advertising giant WPP has highlighted the risks faced by businesses where no effective succession plan is in place to replace a long-standing and influential leader.
Various global business leaders are now being courted for the role Sorrell held for over 30 years, and reports now suggest that Sorrell will quickly bounce back into the marketplace. The issue with replacing him lies in the fact that his non-standard contract allowed either him or WPP to terminate his employment ‘at will’ – businesses are advised to have something significantly more robust in place.
James Beazley, managing director of global leadership advisory firm 6 Group, said:
“A sliding share price, ambiguity over the future direction of the business and chaos in the boardroom are just some of the prices to be paid by getting it wrong. Shareholders in other companies will be looking at this ‘Sorrell effect’ and wondering if their investments are too closely aligned to the fate of single individuals rather than a corporate entity.
“Boardrooms at companies large and small have to put in place strong measures to de-risk the chance of senior figures leaving abruptly. It doesn’t matter whether the circumstances of an executive departure are planned or not. Shareholders are increasingly sensitive to this issue and I expect to see many boardrooms reviewing their succession planning, business continuity plan, crisis management and investor relations strategy as a result.”