The Core of Succession Planning: Ways to Start Thinking About What Succession Planning Means for Your Company
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By 2030, every Baby Boomer on the planet will be 65 years of age or older. If every Boomer were to retire at 65, that would mean an entire generation has left the workforce. Of course, not every person in this generation will stop working; however, according to Pew Research, COVID greatly accelerated retirements in 2021. The New York Times further affirms that the number of people retiring is growing at an increasing rate, not diminishing. This leaves countless senior-level positions open and thousands of companies wondering how to successfully plan for a future. The newest generation of leaders, coming from Gen X and Gen Y, will be taking the reins before we know it.
Here’s where succession planning comes in. I know it’s a term you’ve heard many times but, if you’re like most people, you’re not exactly sure how it’s executed effectively. Or maybe you’re not confident the current leadership at your organization is thinking about it the right way.
First, let’s debunk some succession plan myths. Succession planning:
Is not the same as exit planning. Succession planning is as much, if not more, about support of the next generation of leadership as it is the exit, sale, retirement, or departure.
Does not only apply to small, family businesses. It applies to every organization that intends to stay in business, continue its growth, and expects a turnover (or exit) of its leaders over time.
Does not mean simply handing the business over to a well-meaning family member or friend with little thought about what continuity of business looks like for them
Should not enrich the person exiting the business to the detriment of those staying engaged
Should not encourage semi-retirement of leadership with plans to manage/hover from the sidelines
At a high level, real succession plan requires:
Creating a thoughtful vision of values and goals for the future of the company
Drafting a plan that involves all levels of management to reinforce a successful operation
Building a blueprint for the next generation so they can continue to grow and nurture the organization and its mission
How is exit planning different from succession planning?
An exit plan typically considers the sale of a business, with new ownership coming in to make most, if not all, future decisions. Those who were in leadership of the sold company may be expected to stay on as part of an earn-out, or similar continuity arrangement, to ensure legacy customers or relationships don’t fracture. In succession planning, an owner’s priority is not focused on extracting money from a sale, but rather to hand the organization over to a well-groomed new team of leaders.
Effective succession planning means facilitating the development and activation of a new generation of leadership. It involves communicating where the company is headed and how the company – as a team – will get there.
Succession planning isn’t just about replacing a senior leader or owner -- it’s about ensuring leadership and management don’t falter when a single person or a group of people moves on
Succession planning isn’t just about replacing a CEO, founder or owner. For example, succession planning at Apple doesn’t contemplate the departure of Steve Jobs or Tim Cook; instead, it applies to continuity within the entire workforce. Mature companies may want to identify the best immediate successor as well as draft a plan that ensures continuity while concurrently reducing the risk of dropped balls or fractured processes.
Ask yourself: what would happen if your CFO took another job or your COO didn’t return from medical leave? No company should allow someone to become so indispensable that their departure creates massive risk. Cross-training, an intentionally woven vertical and horizontal hierarchy, and a clear succession plan help alleviate this risk well before succession takes place.
How are companies getting this wrong?
Interestingly, the smaller or more immature a company is, the more risk is at stake since there tends to be fewer people and a greater reliance on each of them. A few years back, I wrote a LinkedIn post, inspired by an enlightening Stanford report, that identified just how many owners are simply handing the keys over to the next person without having a process in place to select that person.
As odd as it might sound, companies don’t always know how to find the very best candidate. There might be a single candidate who rises to the top and appears to be the best successor, but a more thorough assessment needs to take place before advancing them. Just because they have experience, the questions must be asked: are they respected, trusted, admired internally? Do they represent the future of the organization or are they a legacy? While internal promotions often seem to be good choices, it usually makes sense to explore candidates outside the company as well.
And what about other supporting positions? Companies aren’t always considering what other positions need to be filled or even created to fill a vacuum left by one or more leaders. Thus, development of a more comprehensive human resources strategy is often required for continuing the momentum in a changing environment.
What happens if you don’t have a succession plan in place?
Frankly….it’s not a good idea to run a business without a succession plan in place. Just as you don’t want to grow older and achieve a greater level of earnings potential without an estate plan, you don’t want a growing business without a succession plan to preserve value and protect stakeholders.
We’ve all seen this story unfold: A much-beloved parent or friend suddenly passes away and the children or network of support scramble to figure out what to do. An excess of time and money is spent identifying where assets are, what expenses must be paid, and other responsibilities that were known only in the mind of the deceased. The stress is immeasurable and those that face the greatest burden often want to ensure their own loved ones don’t have to deal with the same experience.
It’s not so dissimilar in a business. Years ago, a famous candy factory in Memphis, Tennessee with over a hundred years of history, found itself in a difficult circumstance. For decades, the family business had been passed onto future generations in smooth succession. Many original products remained the same. The location remained the same. However, there was limited guidance and buy-in during the most recent succession to the newest generation. Momentum was lost and employees lost heart -- including several who had spent their entire working lives deeply loyal to this business. Sadly, what took over a hundred years to build came close to completely unraveling in a few short years.
Friends of ours, who have long been successful in their own line of work (and own succession planning) ultimately stepped in and purchased the business from the original family. Today, there is a matrix and succession plan in place and it remains one of the most famous candy factories in the city, with relationships and distribution throughout the United States.
When should you start building a succession plan?
Just like estate planning, successful succession planning is an ongoing process. It is not a one-time plan or meeting that takes place when leaders begin thinking about leaving and then wraps up when they are out the door. Rather, this is a living process, continually working to prepare and empower the next generation of leaders.
In short, if you haven’t started yet, now is the time. If you have begun, it’s important to revisit and review on a regular basis. Just as you wouldn’t execute your will and trust at one moment in time and forget about them as you grow older, you don’t want to revisit your succession plans only when necessary.
Finally, keep in mind that succession isn’t just about moving on and sustaining the business -- it’s also about moving toward a goal. Envisioning the future can be an exciting and motivating experience that can help propel the business. Even if your leadership isn’t thinking about moving on any time soon, the exercise can provide valuable insights into the routine strategic planning process.
Who should be involved?
Contrary to some beliefs, this isn’t a huddle between a leader and her direct replacement(s). Meaningful succession planning will include representatives from various departments as well as staff. In large companies, human resources will play a vital role in succession planning as they are tasked with recruiting and filling empty or new positions.
As a leader, be prepared to communicate the intentions and results of a succession plan with your staff at many levels. Being left in the dark brings uncertainty, lack of focus, and anxiety to employees. It’s important that team members are given a glimpse into what’s next for the company, why certain decisions have been made, and how it’s likely to impact their day-to-day. A succession plan is an opportunity for clear, consistent communication and helps staff plan for their own futures within the company.
How can you get help?
First, review your strategic plan and answer the following questions. Start small and work your way up:
How would you rate your preparedness in the event of a sudden business interruption?
Do you feel you have the right people, in the right places, doing the right work?
Do you have an effectively designed vertical and horizontal matrix with people adequately cross-trained up, down, and across the organization?
Are your processes fully documented in living, accessible documents or are they living in the brains of your most indispensable people?
Are you able to promote or hire quickly and fill in gaps as they arise?
Where are you most vulnerable in your succession planning?
Once you take an honest assessment of your preparedness (or lack thereof), you can identify what needs to change. It’s advisable to have candid conversations with leadership about what needs to be done to put a plan in place, who will be responsible for which elements, and the timeframe for getting it completed.
While many leaders at small companies can handle this responsibility, I often encourage them and those at more complex organizations to reach out to specialists with expertise in succession and strategic planning. These professionals will have worked with a number of companies, in an array of complex situations, and are as much facilitators as they are business experts.
If you have questions about succession planning or exit planning, please reach out. I’m happy to walk you through the process or connect you with one of several experts within my network.