Healthy People, No Headaches
How to Build Succession Planning Into Your Company's Operational DNA
How to Build Succession Planning Into Your Company's Operational DNA
The Three Foundations of Succession Planning and How to Integrate Them
Most, if not all, companies started as a family business. Starting with an idea that grew into something that could be built for their family to pass on to future generations – a legacy. Businesses have evolved and while many are no longer traditional family business, the desire to identify as one and create a family-centric workplace has become the center of everything business leaders aspire to do.
With just over 33 million small businesses in the U.S. supporting a workforce of approximately 61 million employees (about twice the population of Texas), it is not a minor problem and many of these businesses are not prepared to handle the succession of their leader. Small businesses tend to be family-owned – a staggering 90% – while the majority of these (two-thirds) report that they do not have a succession plan in place.
Succession planning is the most overlooked yet the most critically important element for planning for the future.
Regardless of size, industry, or location, having those difficult conversations and building an intentional and thoughtful plan for the succession of key positions needs to be part of the DNA of the business. A good plan would include connecting the dots of managing people in a deliberate and long-term way. Performance management, training and development, job design, career pathing, recruiting, and coaching should all be taken into account.
We can all relate to the business case supporting the reasons “why” this is important.
First, we must mitigate the risk of losing massive amounts of institutional knowledge as key players look to retire at the highest rates ever. Second, we need to build a plan to retain and develop our next generation of leaders. Finally, we must recognize that leadership talent is not as available as it used to be. Taken together, we are in a leadership crisis.
Successful (and strategic) succession planning has 3 key foundations.
1. Know what is important.
Culture and Core Values. Branding your company as one that embraces a family culture gives companies an edge in recruiting and retaining top talent. Employees want the values at work to align with their personal values. Values are defined and driven by leadership. Ensuring that the next generation of leaders understands this and will continue to champion key values is paramount as you think about succession.
2. Build a good process, and allow time to work through your process.
Identify potential successors and create an exit strategy for leaders. Ask yourself the following questions:
- Has the path to retirement been put in place? Trust is a big part of this transition.
- What is the vision for the role? There are endless assessments available to help you profile the role and evaluate candidates, both internal and external to the organization.
- Is cultural fit at the center of your process? Find a process that fits and be consistent in your approach to select the right person. Build the profile of who the right person is and stay focused – a lot is at stake. The exit strategy is ultimately your timeline.
- Have you built an intentional communication plan? Include a communication plan, a financial outline, key dates, and contingency plans should something unexpected happen during the transition – remember, it is not always a planned retirement that triggers a change in leadership.
3. Succession planning is part of the business lifecycle and something you should be doing all the time.
Serving as a roadmap, the plan outlines how and when leadership responsibilities will be transitioned. This is not a one- and- done.
The key to strategically ensuring the future leadership of your business is to operationalize succession planning – build individual, team and development goals around the idea of building bench strength.
Performance management, career pathing, leadership development – each of these can be woven together in an intentional way to make succession part of your daily business.
A case study of an unprepared business.
Let’s meet Bob. Bob has been at the helm of his family business for decades. His manufacturing company is fifth generation and Bob, who is in his early eighties, is the President. His son, while involved with the business in a sales capacity, is not interested in assuming a leadership role and there is no plan in place for who will step in when he retires.
While it’s assumed by many at the company that Bob will retire in the next two years, no date has been discussed. In fact, no formal discussions have taken place at all regarding his transition. The company has a talented CFO who is relatively new to the organization, but he does not seem to be a contender to take the reins. With 250 current employees and growing, the team has some compliance concerns, not to mention they’ve recently been experiencing high turnover and poor retention.
- It appears a new President will need to be recruited to the organization. There is urgency to fully understand the role, identify a successor and plan the transition.
- An advisory team needs to be identified – accountants, lawyers, management, family members and, if there is interest in selling the company, a business valuator and possibly a broker to help find a buyer.
- The knowledge transfer will take a minimum of 6-12 months and in many cases should be closer to 18-36 months. Ideally, we want this to be structured as an overlap with the exiting President.
- Planning for a successor involves risk. Engaging other stakeholders in this process is important as organizational goals must stay focused and disruptions to business must be managed.
This scenario, while alarming, is not uncommon.
The data is telling us that companies are not ready to navigate succession.
Only 51%, according to the 2023 Gartner Board of Directors Talent Survey, of board directors that were surveyed – representing various countries and industries - stated that they had a written succession plan in place. Of these, 60% are confident that they will be able to successfully manage the succession of the CEO. This is not an overwhelming vote of confidence. Digging a little deeper, we see that only 18% of companies without a plan believe that they would be able to navigate the CEO succession.
Availability of leadership talent is dwindling.
Statistics show us that the demographic drought is impacting leadership, specifically the C-Suite – in a big way. We have seen a 41% increase so far in 2023 with 1,261 CEO’s leaving their post as compared to 895 in 2022. This is the highest quit rate since this data was tracked starting in 2002.
Throw in the fact that the labor participation rate has dropped significantly – a combination of a decline in immigration, a decline in the fertility rate, and an increase in retirement – and yes, we have the perfect storm.
What about engagement from the current C-suite to drive succession? If we consider that nearly 70% of the C-suite are “seriously considering” quitting, we would be remiss not to question the level of commitment to ensuring succession.
So, the bottom line is that we have less talent to pick from. This makes the urgency to talk strategy and succession the most important thing that businesses need to be doing right now.
What is holding you back from positioning your business for success in the future?
- Urgency. Do it now. Engage with an expert who can guide you through the process. This is the project piece and will start the process to…
- Operationalize succession. Build this into your DNA so that you are always planning and working the talent pipeline.
- Planning mitigates risk. Any change in leadership has a ripple effect and will disrupt business. Anticipate this and minimize the risk.