The Best Time To Start Succession Planning? Now!

"Why do I need succession planning? I'm very alert, I'm very vibrant. I have no intention to retire." -Sheldon Adelson, Chairman and CEO of the Las Vegas Sands

The octogenarian business magnate is certainly playing a winning hand - but that's no reason to ignore succession planning. Some leaders feel it's "making a date with fate." Sure; it is preparing for the worst. It's also preparing for the best. Grooming a successor can free you up to pursue new goals and dreams; but only if you start now.

Are You Planning Ahead?

Ask yourself this simple question: if something unexpected happened to you, who would be able to fill your role temporarily? If you don't have a good answer, you're not alone. While research shows that companies with succession plans tend to outperform those that do not, companies planning initiatives lag behind. A study conducted by the Rock Center for Corporate Governance at Stanford University and the Institute for Executive Development found:

  • Only 46% of respondents had a formal process for developing successor candidates for key positions.
  • Only 25% said they had an adequate pool of successor candidates for the CEO position.

Professor David Larcker, lead researcher, says, "These findings are surprising given the importance that strong leadership has on the long-term performance of organizations."

A PwC study finds similarly discouraging results in the family-owned small business sector. Seventy-three percent do not have a "documented and robust succession plan" for key roles.

What's keeping executives from engaging in a sound planning process? Vistage International identifies several prominent reasons in its "Get a Life Guide for CEOs":

  • CEOs tend to be better doers than delegators. They can't make the leap to thinking about someone else at the helm of the organization.
  • They want to retain control; this is particularly true of entrepreneurial leaders. PwC refers to this as the "sticky baton syndrome."
  • Many executives fear they'll be ousted if they cede control.
  • Some leaders don't know who they are without their business.
  • They don't want to deal with the fallout if they do not select certain people as succession candidates.

Failing to Plan...Planning to Fail

Besides the obvious - having a period of chaos and uncertainty after a leader's departure - lack of succession planning can put companies at risk in other ways. Not having a plan in place can:

  • Drastically reduce the value of the business.
  • Result in steep estate taxes.
  • Turn off key employees, customers, and other stakeholders who don't want to deal with uncertainty.
  • Result in the hasty appointment of a successor who is not qualified - or motivated - to lead the business.

Getting It Right

Former Vistage speaker Donald Shelly recommends asking the following questions - and committing your answers to writing:

  • What are the options for the business?
    • Liquidation?
    • Going public?
    • Selling to a third party?
    • Gifting the business?
    • Selling the business to family or employees?
  • Who should be the next stockholders?
  • Who will run the company?
  • What is the business worth?
  • How will family and/or employees pay for stock?
  • How much income do you need?
  • What are your contingency plans? Consider:
    • Who can run the business?
    • Who will own it?
    • How will the business be run?
    • How will the transfer be funded?
  • When should you transfer voting control?
  • Do you have more than one stockholder? (If so, you will need a buy/sell agreement.)
  • Are there personal guarantees that your successor must honor?
  • How does your succession plan relate to your estate plan?
  • What is your timeline?

Randall Beck, managing partner at Gallup, says, "When a company builds a plan, it needs to be able to see the future and identify any holes or gaps before they affect the company." Take the time to answer these questions thoroughly and identify your organization's gaps. If, for instance, you identify three possible candidates but discover none owns the necessary skills, you can determine which areas they need to strengthen and accelerate development here.

Share your insights with your executive team and gather their input. If appropriate, integrate their feedback and finalize your plan. You'll have the clarity you need to start grooming your successor - and to start planning the next chapter of your career and life.

Succession planning is not making a date with fate; it's shaping it. Decide how you want your future to look, and plan for it.


Written By

Larry Hart


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