4 Keys to Implementing a Successful Succession Plan

First, a Story

The company was a great place to work.  For over 25 years, employee turnover was exceptionally low and financial performance was steady.  The father/owner was a kind, empathetic and much beloved man, by his employees and customers alike.  Yet, the man’s aging made him less able to put in the effort he once could.  It was evident he needed to hand over the reigns to someone else.

The father looked at his options, and without hesitation, he proudly passed this family-owned business to his son.  In contrast to the father’s warm temperament, the son was much more brash and cared more about the company’s prestige, growth, and profitability than its core values.  In conversations with customers, the son struggled to articulate his new vision for the future.  In conversations with employees, he failed to explain how his proposed changes would impact them.  Consequently, he fought for the respect of the customers and employees who had valued the father treating them “like family”.  The lack of vision and communication led to distress and ultimately the business was forced to sell.  The father was absolutely devastated.

What happened to this South-side Chicago business is not at all uncommon.  Many family-owned businesses fail because of the lack of a strong, clear plan for succession.

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What is Succession Planning?

Succession planning involves identifying the business’ future needs and crafting a living, ongoing process for preparing the current and future generations to meet those needs.  The key words here are “ongoing process”.  It’s not a one-time event that starts when the key leader considers leaving and ends when the successor takes over.  It is also not just about introducing a new leader at the top.  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. 

A New Wave of Succession Planning

The next five to seven years will give rise to major developments in succession planning.  Why now more than ever?  A significant number of Baby Boomers (born 1946 to 1964) will head into retirement leaving behind big shoes to fill.  Hopefully their sons, daughters, partners, or managers will be up to the task of filling those shoes.

Even with the upcoming departure of so many Baby Boomers in senior-level leadership positions, succession planning is lacking in most organizations.  In concept, succession planning is simple – it is a voluntary reorganization to turn the page and keep an organization going.  But in practice and implementation, it is much easier said than done.  A recent Stanford study reported the following challenges  which are worthy of noting:

• Companies plan for succession to “reduce risk” rather than to “find the best successors"
• Companies do not have an actionable process in place to select senior executives
• Companies do not know who is next in line to fill senior executive positions
• Roles are not defined and often they are not followed
• Succession plans are not connected with coaching and internal talent development programs.

The Stanford study provides a glimpse into a common issue facing many businesses, but it presents us with observations more than it offers solutions.  Following are some tangible suggestions for tackling this difficult (but very necessary) exercise.

#1 Align the Succession Plan with Business Strategy

The Problem: 

Many businesses do not have a clearly-articulated strategic plan; leadership merely views succession planning as passing the torch.  When a business lacks a strategy, it is more difficult to know:

• What the succession plan should look like
• How the succession will impact others within the company
• What makes the plan more likely to succeed

This leads to greater uncertainty among managers and staff, resulting in a lack of focus, and consequently, weakening performance.

A Solution:

• Identify what the future looks like and the likely path for getting there.  With a plan and process defined, determine what will be demanded of the leadership team.
• Ask:  what role(s) will need to be filled?  For each of those roles, what skills, leadership styles, values, temperaments, and relationships will be required?  How do each of these roles and intangibles differ from those of the predecessor?  You may be surprised how much the company has evolved.
• If key deficiencies exist, what training, developing, or coaching should be employed?  Should additional staff or interim managers be hired to facilitate the transition?
• Should the successor come from within the company or outside?  Should the former leader pass knowledge before his/her departure or stay involved as an  advisor?

Don’t just ask these questions – answer them!

#2 Communicate Clearly and Consistently

The Problem: 

Too often, succession planning takes place in a vacuum without the input of middle-management and staff.  Additionally, many leaders (wrongly) view succession planning as highly-confidential and don’t communicate internally or externally.

A Solution: 

Neither of these perspectives is usually warranted.  Indeed, some details do not require input nor do they need to be shared; however, the future of the organization depends on people knowing and buying into the future vision.  Being left in the dark brings about unnecessary anxiety.  

In conversations with staff, explain what is happening and why the chosen successor is the right person to move the company forward.  Seek involvement of managers and staff in positions of influence where appropriate.  From the conversations, make the following assessments:

• Is the successor highly-respected, trustworthy, and admired?
• Is the successor the a) easy choice; or b) the best choice?  Who within (or outside) the company would be the best alternative?
• If empowered, what changes would managers and staff like to see when a transition takes place?

The succession plan should be formalized (yes formalized) and clearly articulate steps along the way.  Use the plan as an internal road-map and to drive dialogue.

Communicate changes taking place to suppliers and customers.  Formally introduce them to the new leadership and relationship managers.  Allay any concerns they have about disruption to their businesses and explain how the transition will be effective and impact them.  A note of warning:  Assess whether their loyalty lies more firmly with the departing predecessor than with the business itself.  Though rare, be aware that some suppliers and customers may leave the relationship because of the predecessor’s departure.

#3 Manage Morale

The Problem:

The founder of the business is its heart.  The founder came up with the vision and mission and the path for building the company around them.  The values that came to be paramount to the brand and culture must be passed onto the next generation.

Change can be painful and increased uncertainty may negatively impact morale.  Ultimately, people may leave the company because they don’t like what they see.  This will include high- and low-performers alike. 

A Solution:

As mentioned in #2 above, being left in the dark brings about uncertainty among managers and staff, unnecessary anxiety, and a lack of focus.  In times of transition, employees who can’t see their future are more likely to be disengaged and discontent and more likely to leave.  Research reports that over three-quarters of employees would stay with their current employer if they knew their career path.  Clear, consistent communication of the succession plan is, therefore, critical to alleviating fears and concerns.

In a reorganization, the willful departure of low-performers can often be a blessing; however, the departure of high-performers may exacerbate poor morale.  This must be addressed and avoided.  One major consequence of ‘founderitis’ is the failure to develop empowered leaders across the organization.  High-performers may view leadership succession as an opportunity for advancement.  But if they don’t feel they are equipped and positioned to advance, they will leave and find opportunities elsewhere.  Ensure the succession plan is aligned with the overall strategy and highlight for key people what greater opportunities for growth and development await them.  But don't just promise – deliver.

#4 Consider Financial Condition

The Problem: 

A transition in leadership may cause some disruption in the business.  Concerns may arise among managers, employees, suppliers, and customers and they may disengage.  Or worse, they may find other places to do business.  The ripples may negatively impact financial performance.

A Solution: 

Assess the financial stability of the company and ask the following three questions: 

• What are the company’s most vulnerable weak points?  
• Can we minimize the risk of these weak points?
• Is its financial position strong enough to withstand a shake-up or departure of leadership, managers, employees, and customers?

There are rarely optimal times for transition; yet, some are better than others.  If a difficult financial situation exists, you may determine that now is not the right time.  That's okay – remember that succession planning is not a one-time event.  Prepare for the day transition takes effect, long before the trigger is pulled. Always be focusing on how to build a stronger leadership team and financial foundation.  

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Key Take-Aways:  Successful Succession Planning

• Have a plan:  Succession planning should be congruent with strategic planning.  It isn’t merely a step-by-step checklist for passing the ownership torch.
• Communication is key:  Succession planning shouldn’t be a secret to the rest of the company.  Seek feedback and buy-in from the people it will affect.
• Succession planning isn’t about transitioning at a set date – it’s ongoing:  A business should always be planning for leadership succession, whether it’s voluntary or involuntary.
• Address poor morale:  During times of change and uncertainty, disengagement results from a lack of trust, security, respect, and communication.  If you want to keep key people engaged, you must address these issues.
• Evaluate the financial risks:  If financial health is questionable, now may not be the best time to effect a transition.  Assess whether the business is strong enough to withstand a shake-up. 
• Successful succession planning is as much about continuous leadership development and employee engagement as it is about transitioning equity and control. When key people take holiday, fall ill, die, resign, or retire, the incident shouldn’t derail the company.