Succession Planning: It’s Not All About You
Succession planning takes the skills and experience that made you successful in the first place and focuses them on what your business and business heirs need to thrive in a changing world.
The biggest hurdle to effective succession planning is not financial or structural, but personal and psychological. Often those who built their own business identify so closely with it that they can’t quite let it go. Yes, they know they’re not immortal. Yes, they want to enjoy the fruits of their labor. Yes, the next generation is eager to come into its own. “But I’m too young and busy to think about that right now.” “But I already know that [insert name here] will take over someday.”
This kind of absolutist thinking ignores the complexities and realities of what the business needs, potentially setting in motion painful consequences for both people and the organization. HBO has built a hit comedy-drama, “Succession,” around just such a worst-case scenario. The scheming and plotting of the dysfunctional Roy family is an object lesson in how not to succeed as a family in business.
How to Succeed at Succession
Both contingency and long-term planning require owners/CEOs to first do the emotional heavy lifting of accepting that they cannot forever hold the reins. Once you embrace change, you can more readily apply the skills and experience that made you successful in the first place to drilling down into the details of crafting an effective succession plan.
- Who will take over? What are their needs and capabilities?
Internal promotions are cost and culturally effective. I urge my clients to: 1) objectively assess a potential candidate’s capacity and inclination for leadership: 2) map out a 12-month timeline of competencies and experiences; and 3) measure how well they meet those criteria.
- Who else needs to be involved?
A new CEO needs a reliable C-level team. Bring your CFO, COO, CHRO, etc., into the process; it will broaden your planning perspective and keep them appropriately informed so they can integrate your objectives into their respective planning and hiring processes. Sizable retention bonuses will make it worth their while to maintain a steady course throughout the coming transition.
Furthermore, don’t leave other business partners in the dark. Introduce your successor to your banker, especially if the business is leveraged and you’re the one securing the loans. Transitioning leadership includes opening doors for the next generation of business relationships.
- What’s next for the retiring CEO/owner, and how will they be remunerated?
While many retiring CEOs shift into advisory roles and/or join the board, it’s critical to define the financial buy-out that secures your retirement. Clearly articulate your expectations and bring in outside experts to advise you.
Consider a Different Perspective
John grew a highly lucrative construction business by focusing on starter homes – nothing fancy, but a lot of them. His kids grew up with a higher standard of living and enjoyed more opportunities than he had had. When John’s son, Jack, returned to the family business after climbing the corporate ladder, his experience and education gave him a very different perspective on where the company should be heading. ABA’s process helped father and son step back from their opposing points of view to consider what was right for the business and how each of them might realize his personal goals. Jack ultimately bought John out and refocused the business on custom, high-end homes. The business is thriving, and every member of the family is reaping the benefits of a well-executed plan.
Establish Rules of Engagement
Sally is a fourth-generation business owner who credits her great-grandfather with establishing the family values system that continues to inform how the company runs today. Any family member interested in the business must complete a four-year college degree, put in at least two years with another organization, and then apply for a job like anyone else. Hires are made on the basis of capabilities, not genetics. Every aspect of the business is intentional; no decision lacks discipline. This transparency means everyone feels empowered.
Human beings are generally uncomfortable with change, but as Benjamin Franklin famously put it, “Change is the only constant in life. One’s ability to adapt to those changes will determine your success in life.” Succession planning is a challenge, but one that you can readily negotiate if you’re willing to take an honest look at the needs and capabilities of your business, your potential successors, and yourself. The value of a business is not absolute. It relies in large part on the talent, experience, and relationships of the person in charge. Focusing your capabilities and know-how on strategic succession planning can ensure the value of your business and set your business heirs up for success in a rapidly evolving world.
Nicholas Preddice, Founding Partner at AffinityBST Advisors, helps successful people realize their ambitions for sustaining meaningful lives. You can reach him at 973-534-5785 or firstname.lastname@example.org.
“Change is the only constant in life.” – Benjamin Franklin