April 12, 2019

Succession Planning: Rationale

Jay Brandi
Owner/President/FinPlan Associates

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According to studies by the Conway Center for Family Business, only around 30 percent of family businesses move to the second generation of the family. Only 12 percent survive for a third generation. 

 

A well-structured and well-planned strategy for the succession of leaders in a business, especially for a family business, can be one of the most important company documents created for the firm. A well-crafted and insightful succession plan can be crucial to providing for the continued success and value creation of the company. While important for all firms, for a family business a well-developed succession plan is an especially critical managerial tool since the family firm can be the key to the livelihood and wealth of both current and future family members.

Succession plans should be prepared and updated as necessary for all company positions with significant responsibility and authority within the firm. In short, they must be prepared and available for implementation for all positions with leadership and decision-making impact on the success of the firm.

The basic and most fundamental rationale for well-defined succession plans is that the implementation of the plan will be non-disruptive, efficient, and flexible. In creating a viable and effective succession plan, several basic issues must be addressed.

First, is there a need for a plan to be implemented due to a critical managerial vacancy now or in the immediate future? Alternatively, is the plan to be created and implemented on a presumed planned basis with future retirements or resignations? Keep in mind, as noted earlier, that a succession plan should be created for all of the important players in the firm to include not only a CEO or President, but also the CFO, CIO, and other significant decision-making members of the firm’s executive team.

Second, how will the successor be selected? Successors can be family or non-family members for a family firm. They can be internal employees or executives of the firm or they can be recruited from other firms.

The selection process must include the consideration of a variety of successor characteristics to include a candidate’s potential for success; for internal candidates, their seniority in the firm; the age and birth-order of possible family member candidates; level of competency; knowledge of the firm’s values, culture, operations, products, and services; internal candidate relationships with other employees, suppliers, and customers; leadership skills; a willingness to accept accountability, and responsibility for decisions; communication skills; and motivational and organizational skills. In selecting the successor, it is equally important to recognize weaknesses in each of these areas as well. 

A plan for selecting the chosen successor from among the potential candidates, and if time allows, a plan for training and grooming for the planned succession can serve to avoid serious managerial and leadership issues in both the near and distant future. Including the timeframe for a planned succession will allow a more successful and efficient period of transition. Planning for continued education and coaching over time will also aid in increasing the probability of success over time.

Comments? You can contact me directly via my AdvisoryCloud profile.

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