Part 1: Succession is more than a transfer of power - 6 factors to make it successful

Small, or medium-sized enterprises contribute significantly to the world’s economies. ‘SMEs’ as they are best know, are often family run – 75% of them to be exact (1) and produce a staggering 50% of the USA’s gross national product (2). These SMEs represent almost all, 99%, of UK and Europe’s businesses (3,4) creating more than 50% of gross domestic product in the European Union alone. In terms of workforce, they employ 75% of all staff in the UK and 85% in EU (2). So why then, is long term continuity for these companies so hard to come by?

Sadly, so many companies fail to pay enough attention to their leadership pipelines and succession practices, leading to catastrophic turnover at the top in the worst cases – a destruction of values and threats to the existence of the organization itself.

The rate of successful founder succession, and therefore business continuity is so low that only 30% of businesses make it to the second generation (2,5) and only 5-15% to the third (6). Failure of succession is a global issue that touches all industries and all countries to which numerous factors contribute including a challenging regulatory environment, taxation, lack of awareness and access to training (7,8).

And it’s not just SMEs, succession is also a challenge in Fortune 500 companies, where “only 54% are actively developing CEO successors, while 40% report not having a single internal candidate” (9). Among those having a plan, maintaining a talent pipeline seems to be “the most challenging aspect of CEO succession planning” reported by both public (74%) and private (52%) sectors (10). And although failure of a CEO succession might not mean going out of business, like for SMEs, unplanned CEO succession is expensive: it cost US$112 billion of lost market value compared to planned succession in 2014 to the largest 2500 companies (11).

Since a founder’s departure is such an important phase in an organisation’s life and doing it badly could cost so much, why do organisations not pay enough attention to this? Or if they do, why is it so difficult to handover well? What are the factors that could make it successful from a psychological, emotional perspective? And what the role of a coach might be in supporting this process? These were the questions I wanted to find answers to when I started my MSc research in 2021 and will share with you in this blog series.

My definition of successful succession was the transfer of both ownership and leadership of an initiative or organisation, including the transfer of power and the ‘source role’. In other words, I considered it a success only when the founder had emotionally let go of their power, their role as source, had moved away from managing their original project, so their energy was available to focus elsewhere.

The source is a role in an initiative. It is taken up by the person who “takes the first vulnerable step” (12) to realise their idea. It is vulnerable because there is some risk involved (e.g. shame, failure, disappointment, or rejection) as a result of taking that step (e.g. asking someone to join a project). The source role, therefore, only belongs to one individual who has the intuition to sense what is needed next in their project. They have a special relationship with the vision of their initiative and their job is to “steward the process of realising it” (12). There might be two people involved in creating a company, but there is always only one source role. The source role can be passed on to another individual with an orderly succession process that is voluntary and often includes a memorable moment. This only happens when the outgoing source is able to fully let go and pass the source role on to another individual.

I found that some of the answers lie in the complex, messy and emotional side of succession and these 6 factors I discovered to be amongst the most important:

The founder's willingness and readiness to let go is the most important factor. If they are not willing or ready, succession will not happen. It is as simple as that. The other 5 factors enable the founders' willingness and readiness to develop over time.

Natural flow of exchange (aka love, for the courageous) became central to my findings. Love in succession is “when two people were engaged in a relationship, which is mutually fulfilling and enriching, without coercion, simply voluntarily, so they were able to transfer their initiative between them in a loving and caring way." When this was not present between the founder and this successor, succession did not take place.

The flow of exchange develops over time, and I could observe its presence when the founders had values alignment with their successor. They looked for the same values/needs present in their successor to what they had when they started.

Successor willingness and motivation plays a huge part in developing trust, and a flow of exchange, of course. Contributing factors to these are the successor's career aspirations and commitment; and their readiness and preparation.

My researched showed that being able to let go is hugely influenced by the founder's relationship with the initiative. When the founder is 'separate from' and has a temporary relationship with the initiative, it is easier to let go. It’s not surprising that when their identity is fused with their project, they find it much harder, sometimes impossible, to let go. Mitigating factors are usually high emotional and social intelligence and reflective practice.

And the final factor is successor selection: when a successor is not chosen, not obvious or it is chosen by someone else (i.e. not the founder), succession doesn’t happen. However, when the successor is an obvious, emerging choice made by the founder, it happens easily.

If you are interested in further details, look out for my next posts where I will share more about each success factor.

References are in the comments below.