Keys to Success in Succession Planning
I have previously written about the need for succession planning for a small firm, such as an insurance agency, small shop or professional practice. Today, let’s discuss planning for transitions in larger operations. Regardless of the product or service provided, CEOs and key employees of both family companies and public ones retire, take other jobs and sometimes die in the saddle. Plans should be in place that encompass each of these possibilities.
A succession plan is part of a company’s overall strategic plan, which addresses a firm’s vision, values, markets and growth opportunities. Bringing about both is the responsibility of the CEO. If a business does not have the right people to facilitate strategic and succession planning, a consultant should be retained. (It is often said that a consultant is someone that tells you what you already know you should do, but for which you do not want to take responsibility.)
Good governance suggests a planning process with realistic timelines set forth in the bylaws, vesting responsibility in an appropriate committee, guided by proven procedures.Strategic plan in hand, it should be asked if current executives are up to its implementation. In considering the personnel pipeline, one must ask what will be the effects of retirement, death or job-poaching by competitors? Are additional people needed now or will they be in the future? Is additional training needed for employees with potential? Annual performance reviews are invaluable for this process. Talented mangers should be identified, encouraged and incentivized to remain and compete for the high positions. Others should be informed what skill development needs to be undertaken to allow them to advance as far as possible.
A harder question is what to do with employee-relatives of a founder who typically have expectations of taking over some day. Let’s say CEO Dad wants his son to take the reins in a few years and Junior isn’t up to it. Many years of practicing estate planning and business law have made it clear to me a company should be run to achieve the greatest financial return for its owners – period!
Only a small fraction of family companies survives through the second generation, let alone a third and there is a reason for this. (I take some pride in that our law firm is now on generation four.)
Family companies have certain advantages. Owners, as opposed to operators, are more likely to be good stewards of both assets and beneficial values, plus, they tend to think more long term. But talent can skip a generation. If there are two children in a business and the younger one is the ball of fire, it does nobody any good to let the eldest take over and run things into the ground. Using a consultant can help deal with this sticky problem by letting skills assessments and recommendations come from outside. The goal is to keep the family and, therefore the business, united and contributing for the good of all.
A second challenge in succession planning is taking over from a founder. Entrepreneurs who start firms are hard-charging and hate to give up control. Depending on the age and vigor of the founder, it is essential to have reasonable procedures and timelines for retirement (or a reduction in responsibilities), rather than to leave things vague to the frustration of younger executives who may jump ship.
Every business has a natural growth and decline curve. Successful companies – family ones or not – must have the capacity to reinvent themselves. When growth hits the wall, one must diversify into new areas and sometimes it takes fresh blood to make this transition. A well thought out succession plan increases the likelihood that a business will adapt and make it beyond generation one.
Copyright 2023 The Business Journal, Youngstown, Ohio.