8 steps to take toward a succession plan
I have had the good fortune to work with dozens of closely held enterprises, many of them multi-generational family businesses. Such organizations face myriad complex problems, and succession planning takes a back seat to the issues of the day. Often, the path of least resistance is to have no succession plan at all.
In businesses where management is tight knit like a family, there are often personal agendas and sibling rivalries that make discussions very uncomfortable. Our business culture does not promote candid conversations and the lack of structured performance management systems exacerbates the problem.
Yet the sands of time have a way of forcing discussions, as older generations see the need to sustain what they have built or prepare for a liquidity event. While uncomfortable, conversations like these are entirely necessary and can unearth a litany of complicated legal and tax issues.
Consider these 8 steps when creating a succession plan for private companies and family-held businesses.
1. Set specific, long-term goals for ownership
This is often achieved through some form of long-term planning process.
2. Establish a set of managerial competencies
Focus on those things that are important in your operating environment (such as operational excellence, innovation or financial acumen).
3. Evaluate the management team
Have the management team assess the skills of each manager or hire an outside firm to study their emotional intelligence and skill level. Create a grid and grade based on the managerial competencies.
4. Debrief the assessment
Review the findings of the skills assessment and offer each manager specific development opportunities that will inform on how they can progress during the course of their career.
5. Seek out high-quality legal and tax advice
Consider all legal and tax implications regarding transfer of ownership or control. Remember that with outside advisers, you get what you pay for.
6. Create a robust performance management system
Train your managers (especially senior managers) on how to hold people accountable to specific performance outcomes.
7. Identify the successors
Have frank (and confidential) conversations with your top people about their career path. Consider hiring an executive coach (or have them join an executive group like Vistage) to help them develop their skills. Having the ability to develop other people, understand financial information and harness technology are critical success factors for contemporary executives.
8. Handcuff your best people
Ensure that you have provided incentives for future senior managers to stick around.
Timing is everything, and it is essential to think clearly about when to pull the trigger on transition. Generally, upcoming managers should be moved into position gradually, which allows them to prepare and for others to see that they have earned the right to lead.
The method in which such promotions are communicated is also critical. It is important to communicate why leaders have been selected and what their role is expected to be.
Such decisions are vital to the sustainability of a company. They warrant methodical planning and thoughtful execution.
Read more on this topic: Build the process that you need — but don’t overbuild