Why companies play football with succession?

Dinesh Weerakkody

Many successful business leaders, caught up in the daily demands of running a company, give very little attention to what will happen to the company once they retire.

Some of them postpone succession planning because the task seems too demanding, while others assume they can wait until retirement is few months away.

In many companies, succession planning is avoided because of the emotional and sticky and thorny issues surrounding succession. For some it’s simply too painful to imagine relinquishing control and handing it over to someone else.

We have found that succession planning is important for all types of businesses; it is of special importance for family run businesses, in which business affairs tend to be closely linked to family members and key shareholders.

Many studies have revealed that fewer than 25 to 35 percent of family businesses survive into the second generation, and fewer than 15 to 17 percent survive to the third generation - these statistics further suggest the importance of succession planning.

Succession planning; why?

Many assume that if they have a five-year strategic plan, they don’t need a succession plan because the new guy who comes in can continue as per the plan.

A good succession plan, will take into account the business’s future growth trajectory, ownership form, organizational structure and management.

The plan should identify how the transition from one set of leaders and owners to the next will be managed.

Furthermore, it provides a means of transferring a company’s accumulated store of trust, respect and goodwill to new company leaders.

A succession plan is a formal document. Because failing to plan for business succession can mean significant monetary losses and even loss of the business itself.

A senior leader’s intentions about what will happen to the business upon his departure from it are a poor substitute for a formal plan.

To be effective, a succession plan must also be regularly reviewed by a Board and updated to reflect company market changes, industry or market developments.

Even in the absence of such changes, an annual review would be of immense value to keep a tab of the talent in the company.

Not having a number of crises can befall companies that operate without a succession plan.

For example, a company leadership can fall into the lap of people who have not been properly prepared for leadership, thus threatening the company’s profitability and endangering relationships with key clients.

In addition to preventing a leadership crisis going forward, succession planning offers many immediate benefits. Succession discussions very often help Boards to put together a specific future for their company, Boards often emerge from the succession-planning process with a clearer sense of their mission and business goals.

They force discussions around company organization structures, management and operations.

The discussion may lead owners to the discovery that some of the skills, existing structures or practices are no longer effective for the organization and for its sustenance even forcing a Board to review their business model and the people running the company.

Grooming successors

Most medium to large size companies have now recognized the growing importance of leadership development planning i.e. identifying and grooming employees to move into strategic leadership positions within the company.

However for this intervention to be effective companies need to;
* Identify the kinds of leadership competencies the company needs.
* Identify employees with those competencies.
* Use training and mentoring to ensure their readiness.

Preparing key talent for leadership roles is the polar opposite of crisis management. Rather than waiting until a star CEO retires or suddenly leave the firm thereby creating a talent vacuum, savvy boards start succession and leadership development planning well in advance.

This ensures that someone with the right leadership skills is in the company to take over. However, the steps required to prepare an organization for succession can take several years - and because succession can be the result of a drop-dead situation as well as planned retirement.

Therefore, developing a succession plan is not a task to be put off. Companies that don’t put into place a strong succession plan will continue to get the CEOs and leaders they deserve.

(The writer is CEO HR Cornucopia)