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 – and his subsequent rapid return to the marketplace – has highlighted the risks faced by businesses where no effective succession plan is in place to replace a long-standing and influential leader.
Global business leaders are being courted for the role, which Sir Martin Sorrell held for more than 30 years, before exiting.
Reports now suggest that Sorrell will quickly bounce back into the marketplace because of the nature of the contract he had at WPP. Instead of a standard notice period of 12 months, he or the company was reportedly able to terminate the contract “at will” with no non-compete clause.
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.”