Succession planning: easy to talk about but hard to put into practice

Being prepared can help eliminate ‘environment of instability.’

When John Bliss, founding principal of media relations firm BlissPR, decided to step down after 35 years of service, the
company was ready and prepared. Unlike many, Bliss started planning for his succession almost 15 years ago, by creating a management committee that comprised himself and three senior executives.

‘Succession is not something you do overnight,’ Bliss admits. ‘The committee had been making financial, operational and personnel decisions for a decade and a half.’ Conversely, Apple was hit with a succession dilemma when CEO Steve Jobs took a leave of absence due to ill health back in 2009. Subsequently Apple’s shareholders are planning to vote on a proposal requiring it to ‘disclose a written and detailed succession-planning policy’. But events appear to have overtaken them, with Jobs’ latest announcement that he is taking indefinite medical leave.

It’s not an easy task to pass the torch from one generation of a business to the next; without sufficient planning, the probability of a smooth succession is relatively low. A recent Harris/Decima report reveals that only 46 percent of business owners are thinking about a succession plan or have one in place, while the vast majority (80 percent) have yet to identify a successor for the CEO
should he or she leave unexpectedly. ‘Succession planning is not something that can wait until the last minute,’ says Erica Kuhlmann, managing director of Harris Bank’s Food & Consumer Group. ‘In the end, a well-thought-out plan could be the difference between a smooth transition and a turbulent handover.’

An obstacle to growth

As companies begin to position themselves for future growth in light of the uncertain economic recovery, some feel that not
having the right leader for a business could thwart expansion efforts.

In a new survey released by Towers Watson, a global professional services company, some boards attest to experiencing a spur in
sudden concerns among members over a corporation’s ability to plan for an orderly replacement of talent. Although more than half of the respondents to the Towers Watson Strategies for Growth study state that the loss of talent could hinder a company’s future
growth possibilities, less than 49 percent say they see the lack of succession planning as a top challenge. About 21 percent of companies involved in the study claim to have sufficient capability for succession planning.

‘The global lack of a sufficient governance capability in talent management and succession planning is a real concern,’ explains Nigel Bateman, director of international consulting at Towers Watson, ‘particularly as the least prepared organizations will find themselves
at a significant disadvantage over time.’

‘With talent worries looming large, there’s little doubt that getting the pay/performance equation right can deliver benefits across the board,’ observes Ravin Jesuthasan, global head of talent management at Towers Watson. ‘It gives companies the ability to retain top talent and provides them with a sufficient pool to draw on for succession planning.’

What about a family-owned business?

The Institute for Family-Owned Business states that about 80 percent of businesses today are owned and operated by two or more members of the same family. While some rewards of financial and emotional stability can be reaped over time, the ultimate challenge that faces a family-owned business is to balance tradition with innovation.

In a study conducted by the University of Texas at San Antonio (UTSA) College of Business, more than half of all Hispanic-owned companies surveyed state that they intend to pass on the business to the next generation of the family. Less than one fifth report
having a succession plan in place, however. The survey points out that more than half (56 percent) of respondents are unprepared to transition their businesses to family members, and only 38 percent have created a documented succession plan.

‘This lack of succession planning is particularly disturbing,’ says Frank Woodruff, CEO of Sapient Financial Group. ‘Too often we’ve seen successful businesses shatter once the owner dies or becomes ill.’

‘Hispanic entrepreneurs are busy people and, as they focus on their business, they need help creating a structured financial strategy,’ says Ramiro Cavazos, CEO of the San Antonio Hispanic Chamber of Commerce. ‘We know all business owners need a succession plan. When Hispanic business owners plan correctly for the future, they become successful in carrying on their legacy through their designated loved ones.’

Barbara Bowes, president of recruitment company Legacy Bowes Group, recommends that organizations of this particular sort design a plan that assesses the current executives’ skills and compares the results with the company’s requirements for the future. ‘Does the company have all the skill sets needed, and where are the gaps?’ she asks. ‘Business owners need to be cross-training as many staff as they can.’

Some companies, like global bakery products supplier CSM, use technology to aid the succession process. The Netherlands-based firm recently implemented a succession planning and performance management system, created by Cezanne Software, that allows the company to analyze employees’ strengths and performance. The software consists of in-built reports and gap analyses that equip CSM with knowledge about its current talent pool and help the company to identify possible problems with the leadership pipeline.

‘The system will help us to gain an insight into our global population for talent management, succession planning and performance management,’ explains Renate Visser, CSM’s human resources development manager. ‘Being able to carry out effective succession
planning across a global business like ours without a software system is virtually impossible.’

Delegation of duty

According to Bowes, it should be made mandatory for ‘a business owner to always train a second-in-command. This means delegating as much as possible so that when the owner is absent, the business can continue.’ As for larger organizations, an effective succession plan entails naming a number of potential successors ahead of time to ensure a smoother transition.

‘I recommend that the owner name at least three people for each job and then determine which skills and training would be needed for any of these individuals to take over,’ Bowes continues. ‘Then develop a training plan over time to make this happen; whether someone is ill for six weeks or three months, quits or suddenly passes away, at least some or all of a particular job can be filled by someone else.’

Bowes states that once a backup plan is in place, it will eliminate stress and anxiety among employees. ‘The sudden exit of an organizational leader can be more than just a surprise; it creates a sense of disruption that must be immediately addressed,’ she points out. ‘Failure to do so will result in an environment of instability that may cause highly talented employees to search for security elsewhere.’

To read more on this subject, please go to www.corporatesecretary.com/morefebruary. Aarti Maharaj is deputy editor of Corporate
Secretary.

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