Business Succession Planning
I have previously written about the need for succession planning for asmall firm, such as an insurance agency, small shop or professionalpractice. Today, let’s discuss planning for transitions in largeroperations. Regardless of the product or service provided, CEOs and keyemployees of both family companies and public ones retire, take otherjobs and sometimes die in the saddle. Plans should be in place thatencompass 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 growthopportunities. Bringing about both is the responsibility of the CEO. If abusiness does not have the right people to facilitate strategic andsuccession planning, a consultant should be retained. (It is often saidthat a consultant is someone that tells you what you already know youshould do, but for which you do not want to take responsibility.)
Good governance suggests a planning process with realistic timelinesset forth in the bylaws, vesting responsibility in an appropriatecommittee, guided by proven procedures.Strategic plan in hand, it shouldbe asked if current executives are up to its implementation. Inconsidering the personnel pipeline, one must ask what will be theeffects of retirement, death or job-poaching by competitors? Areadditional people needed now or will they be in the future? Isadditional training needed for employees with potential? Annualperformance reviews are invaluable for this process. Talented mangersshould be identified, encouraged and incentivized to remain and competefor the high positions. Others should be informed what skill developmentneeds to be undertaken to allow them to advance as far as possible.
A harder question is what to do with employee-relatives of a founderwho typically have expectations of taking over some day. Let’s say CEODad wants his son to take the reins in a few years and Junior isn’t upto it. Many years of practicing estate planning and business law havemade it clear to me a company should be run to achieve the greatestfinancial return for its owners – period!
Only a small fraction of family companies survives through the secondgeneration, let alone a third and there is a reason for this. (I takesome pride in that our law firm is now on generation four.)
Family companies have certain advantages. Owners, as opposed tooperators, are more likely to be good stewards of both assets andbeneficial values, plus, they tend to think more long term. But talentcan skip a generation. If there are two children in a business and theyounger one is the ball of fire, it does nobody any good to let theeldest take over and run things into the ground. Using a consultant canhelp deal with this sticky problem by letting skills assessments andrecommendations 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 afounder. Entrepreneurs who start firms are hard-charging and hate togive up control. Depending on the age and vigor of the founder, it isessential to have reasonable procedures and timelines for retirement (ora reduction in responsibilities), rather than to leave things vague tothe frustration of younger executives who may jump ship.
Every business has a natural growth and decline curve. Successfulcompanies – family ones or not – must have the capacity to reinventthemselves. When growth hits the wall, one must diversify into new areasand sometimes it takes fresh blood to make this transition. A wellthought out succession plan increases the likelihood that a businesswill adapt and make it beyond generation one.
