Succession Planning
Succession Planning and Leadership Transition
Leadership transition is what happens when an existing leader transitions out of a business and a new person, or group of people, take over their roles as leaders of the business. Sometimes this happens according to a plan, sometimes it just happens - perhaps due to an event such as ill health.
Succession Planning is the process of planning for this event. Typically, this should be a 3 to 7 year process, depending on the nature and complexity of the business and the need to ensure the financial security of the outgoing leader.
One of the most difficult challenges for any family business lies in making a good Succession Plan. The potentially explosive mix of commercial and personal issues generates more trouble inside more family businesses than almost anything else and, as a consequence, the task is all-too-often put in the “too hard” basket. Sadly, this inevitably leaves a legacy of conflict and possible disaster for both the business and its various stakeholders (especially in the family) as succeeding generations have to clean up the mess and confusion left behind.
The critical realities here are:
- Succession is not a question of: “if”, it’s a question of: “when” and,
- Succession should always be a process, not an event.
Interestingly, banks regard a Succession Plan, especially in a family business, as a key indication of stability and professionalism. The lack of a Succession Plan, especially in a family business with a charismatic and controlling proprietor, may provide sufficient reason for most banks to place the business “on watch” as it becomes increasingly nervous about its financial exposure – both to the business and to the family.
Leadership Transition and Ownership Issues
Heads of businesses, especially but not only family business, often find it hard to transition themselves out of their leadership positions for a number of reasons, including:
- They are used to wielding, and being recognised for wielding, absolute power (in a benevolent way) and see any diminution in their authority as a challenge to their personal status, worth and reason for existing.
- They fear “what lies for them beyond the business”, because their lives have enjoyed such a strong, or even exclusive focus, on it.
- They can’t see anybody else in the business, in the family, or outside either or both, who can know, love, suffer and achieve for the business as much as they did/do.
- They want to protect their valued employees, or family, from the perceived vicissitudes of command.
- They want to enhance, or protect, their own retirement prospects.
Meanwhile, their fellow directors and managers, sons and daughters, relatives and non-family managers working in the business wait in the wings to be called to centre stage, getting increasingly frustrated that the head of the business is the only one who thinks they’re still getting curtain calls!
The Succession Planning Process
We take a Solutioneering approach to Succession Planning, using the CONSEPS model. This mobilises our facilitation, problem solving, commercial, financial, business advisory and mediation capabilities to enable our Solutionists to work closely with directors, owners, executives and family members, on the process.
Our he process is designed to help develop a new leader who can “stand on the shoulders” of the old, rather than simply “fill their shoes”. The new leader must be accepted by company employees, family members, other stakeholders and the market place at large, as the best choice for the job.
In the case of a family business where there is no intention to allow control or ownership to pass outside the family, the process helps select the best candidate and identify whether (a) they are up to the job at all and (b) what training, coaching and support they may need to be able to take over and run the company properly in the long term.
The main process stages are as follows:
Stages 1 & 2 = Analysis (here and now). Stages 3 & 4 = Synthesis (options and plans):
- Information Gathering - identify key stakeholder, business, economic and personal interests, issues and needs. Establish required candidate profile(s). Gather information re potential candidates including their character, capacity, quality, style, interests, needs and expectations.
- Situation Analysis - evaluate information gathered in Stage 1, including comparative congruence and the strengths and weaknesses of situations and individuals. Assess the strategic implications of changing market conditions, political and economic environments.
- Option Generation - generate a range of possible options for leadership transition, in the context of business development.This facilitated brainstorming process will be based on the information developed in Stages 1 & 2. These options should identify candidates and targets. Assess, select and refine options into “best fit” plans to complement the company’s broader Strategic and Business Plans over designated timeframes. Help to negotiate / mediate acceptance of options amongst disappointed personnel.
- Solutions - implement the plan as a fully-worked, written, leadership transition plan. Implementation includes: gaining full acceptance of decision from interested parties; training, coaching and mentoring of nominated individual(s), continuous performance assessment, acknowledgement of error and contingency plans. The plan should become part of the business’ Strategy Plans and Business Plans. If we are working with a family business, the plan may also be enshrined in a broader Family Agreement / Family Constitution.
We also accept nomination as the independent "kicker" who is given contractual authority to enforce the terms of the Plan.
Succession Planning – A Four Stage Process
Here and Now (Analysis) |
The Future (Synthesis) |
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1. Analysis |
2. Evaluation |
3. Options |
4. Implementation |
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Ten Essential Wisdoms for Successful Succession
- Do make succession a controlled process, rather than an event.
- Do be professional, not protectionist. Provide objectivity, independence and impartiality for the sake of your business and for those whose lives who depend on it.
- Do recognise that there are always other options. Search and think inside and outside the square.
- Do appoint someone to be a long term steward, rather than an owner of the business, its people and its values. Their motives for seeking the role should place business continuity far above personal gain.
- Do respond to the old leader’s fear of the abyss. When the business has been his or her life, moving out of it is like stepping into the void. Help to ease their move.
- Do work out how much is enough? How much money does the leader need to be financially secure for the rest of his or her days? Let the balance go if it will help the succession plan and create sustainable harmony in the business and / or in the family.
- Don’t just search for, or try to create, a clone of the current leader – the successor should stand on the old leader’s shoulders, not just fill their shoes.
- Don’t demand 60 year old behaviours and values from 30 year old candidates. Exchange safe horizons for credible, 20+ year visions for growth and prosperity.
- Don’t“hand over the reins without getting off the horse”. Don’t demand responsibility without giving ownership, even though the latter may be staged.
- Don’t surrender your business and family timing objectives purely for tax/wealth benefits. Weigh personal gains against financial pains.
Benefits of Succession Planning
As Solutionists, professional mediators AND business advisers we bring a different set of competencies into the Succession Planning process, compared to the conventional services typically offered by lawyers and accountants. In our experience this invariably produces better and more complete outcomes for everybody involved in the process.
Before addressing the legal and accounting issues (for which we use the businesses’ own advisers, or other specialists we can comfortably recommend), we deal with and try to resolve the personal, relationship and potential conflict issues that are always simmering below the surface - that is, if they’re not already in full view!
We believe that in most businesses, and in almost all family businesses, these issues are usually not addressed adequately, or at all, through the conventional advisory process. The result is enormous angst in the key players (ie: proprietors, executives, managers and family members) at the very time when they most need a clear head to make major decisions and deal with the major changes they are about to undergo.
Solutioneering avoids these process and personal deficiencies – producing far better results overall for both the people most intimately involved, for the business, for the family and for its various stakeholders.
