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Why Is Succession Such a Dirty Word?

 

Why Is Succession Such a Dirty Word?

Reporters love to write about it, speakers love to talk about it, and industry panels love to debate it. You can’t open a trade magazine or attend a conference where succession planning is not a topic.

So why aren’t business owners doing it? Only 20% percent of owners have a succession plan in place, and that statistic hasn’t changed since I started in the corporate consulting field 28 years ago.

The reason is not as complicated as you may think. Whereas corporate America considers succession planning a component of an overall growth and perpetuation strategy, business owners have made succession planning an event and a standalone topic unrelated to the business’s long-term corporate plan. Also, many owners have created jobs for themselves, wrapped in a business structure, so it is less about growing and perpetuating a business and more about preserving a career.

Succession planning is about getting documents in place should you want to exit the business or protect it against an unforeseen event (e.g., death or disability). Sounds easy enough, but why aren’t more owners putting these documents in place? There are two key reasons:

  1. Succession planning means having to deal with emotions and tough decisions. It’s human nature to procrastinate or avoid it altogether.
  2. By nature, business owners have no problem calling the shots or taking calculated risks, but they do not spend time talking to experts and educating themselves about their options so they can make informed decisions.

So how do we begin to solve a problem that is not going away, is probably worsening, and is detrimental to preserving the vision and legacy many business owners have worked a lifetime to create? We begin by realizing that succession planning is not a subject unto itself but rather part of a short- and long-term corporate planning strategy. And with any business strategy come dos and don’ts.

Don’t Confuse Ownership With Leadership

Most people who ask me about succession planning believe ownership and leadership are inextricably linked—that the business’s future leaders must be the future owners, mirroring the structure often established when a business is initially founded. However, this structure is not necessary, and it may not be desirable.

Segregation of ownership and leadership is regularly practiced in publicly held companies and provides many benefits. First, it allows greater flexibility in choosing leaders who have skills that match the particular needs of the business at a given point in its evolution. It can also simplify succession planning because the people who possess the best leadership attributes are not always those who have the financial resources to be the largest shareholders. Overall, separating ownership and leadership will provide your business with greater flexibility and, in many cases, more effective leadership.

Don’t Confuse Culture With Values

Many businesses take great pride in their unique culture, using it as a differentiator in attracting clients and employees and as a key factor in succession planning. Many organizations prominently describe their culture on their website and discuss it during the recruiting process. This perception of culture is so prominent that the next thing I am about to say may come as a shock:  Whether you like it or not, the culture of your business changes with every employee who joins or leaves it. Culture is not defined by a list of attributes created during a planning meeting or by the CEO; it is the result of the combined characteristics and interactions of every individual at the business. These effects are felt by small and large companies alike. Despite efforts to hire people who are similar (whether done consciously or not), every individual is different. Such efforts to maintain homogeneity also preclude a business from experiencing the benefits of leveraging diversity, which is the ultimate source of flexibility, creativity, and innovation.

It’s often said that establishing a strong company culture is part of the CEO’s responsibility. But if you have ever witnessed a CEO try to establish a culture that conflicts with the natural culture of the business, you know this doesn’t work well. Rather, it’s the CEO’s responsibility to establish and communicate a vision, create and guard the values, set the tone, and inspire the spirit that shapes the culture. Cultural change of this nature is both natural and healthy and is part of the business’s evolution. Fighting such change when planning for succession will only create discontinuity between the business’s purported culture and the true, suppressed culture. Such discontinuity leads to dysfunction and dissatisfaction among employees who must fit within an unnatural context. The sooner you embrace cultural change as part of the natural evolution and succession of the business, the happier your employees will be—and happy employees create happy clients. Focus more on values than culture in your succession planning.

Don’t Ignore Evolving Needs

When identifying and preparing candidates to serve as the business’s future leaders, the selection criteria (and often the training and grooming provided to selected candidates) are too frequently based on the historical needs and experiences of the business and its current leadership. This approach neglects to consider how the business and its needs have changed and how issues likely to emerge over the next leadership team’s tenure may require different skill sets. Some changes may be obvious, yet often they are still overlooked. For instance, as a result of expansion of the business, business-management skills may be more important than in the past. Similarly, increases in competition and uncertain economic conditions may indicate that business-development skills should be the dominant attribute of the business’s next leader because there are some doors only that leader can rapidly open.

You should also recognize that the marketplace and industry are continuing to change—and at a rapid rate. This underscores the need to consider trends likely to emerge in the next decade, since these may influence the combination of skills required of the business’s new leadership. Such changes and uncertainty may also influence the business’s leadership structure. For example, establishing a presidential model, where the leader has a cabinet of advisors with expertise in a variety of special areas, may be the best choice for your business. In any case, you should use the business’s evolving needs, rather than historical or current needs, as a forward-looking focal point to define the key attributes of the future leadership team, the training and grooming of those leaders, and the leadership structure. These evolving needs are best defined as part of the business’s strategic planning process, which should include forward-looking quantitative and qualitative assessments of market and industry trends.

Don’t Overlook a Contingency Plan

Your business’s future leaders might come from inside the business. In order to both retain them and provide ample time for grooming, it’s important to identify those candidates early. Stringing along multiple candidates for singular leadership positions is not a desirable approach. In many cases, two or more times the resources are required for grooming and training, which tends to breed an unhealthy, competitive environment and could provoke unselected candidates to leave the business altogether when the final announcement is made. On the other hand, having a singular candidate for a given leadership position without a contingency plan exposes the business to the risk of losing the candidate, whether because of their voluntary resignation or for some other reason. Surprisingly, these two approaches are among those frequently employed by owners. A preferable, alternate approach is to identify the leadership candidate early, along with a candidate who will become the assistant leader. This assistant may be someone with less experience and could be a second-generation successor for the position. By identifying and preparing both candidates for a given position, the business has an alternate if the primary candidate cannot fill the position, without the risk and cost of preparing multiple candidates. Because the assistant is clearly identified as such from the onset, it tends to reduce the occurrence of unhealthy competition and enhances the business’s ability to retain both personnel.

Don’t Discount Succession Planning as a Competitive Advantage

I bet you thought “waiting too long to start planning” was going to be one of the points. Waiting too long is not itself a mistake but rather a symptom of one of the mistakes—that is, failing to recognize that succession planning should be an integral part of your business’s routine strategic planning. Succession planning is often viewed as a separate, long‐term task that is not linked to near‐ or mid‐term consequences. Nothing could be less accurate. The long lead time of many succession-related activities can have significant impacts on near‐ and mid‐term resource availability, which can affect the number and type of other strategic initiatives you can simultaneously pursue. Succession planning also affects your business’s near‐ and mid‐term business continuity capabilities because leadership and ownership succession can be involuntarily accelerated unexpectedly by a single event or accident. As a result, the blueprint for your business’s succession can have as much, if not more, impact on your business’s growth and profitability than other strategic initiatives. It can also influence a large number of business characteristics, including recruiting and retention practices, geographic footprint, and focal practice areas. The earlier you start the planning process, the broader the range of technically and economically feasible options that become available for achieving your business’s vision. The lead time required for succession planning will vary depending on a number of factors, including:

  • Business size
  • Current ownership structure and distribution
  • Current and projected profitability
  • Retirement plans; age and health of current owners
  • Strength of leadership bench
  • Strength of ownership bench
  • Competing resource requirements
  • Current and anticipated market conditions

In conclusion, we hope we have created logical reasoning as to why Succession Planning is in fact Strategic Planning. Having a solid strategic plan only enhances the likelihood of perpetuating a legacy, which you worked so hard to create. It’s good for your clients, your staff, your family and—oh, yeah—your business. Recommended timetables for succession planning are typically in the range of three to ten years (three years for a business that has a simple structure and is in very good shape, and longer for others). However, the sooner you incorporate succession planning into your strategic planning, the greater the benefits for your business. You can use this opportunity to leverage your succession planning for a competitive advantage.

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Paul T. Lally
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