By Bradley Hunt, Attorney at Law
What will happen to your business if you retire, become ill, or die? Succession planning allows you to determine the answer to this question well in advance of any of these scenarios becoming reality and can ensure your business survives into the future. An article on business.com reported fewer than two-thirds of corporate leaders interviewed were actively executing a succession plan by grooming potential leaders. Another survey reported only 17% of non-profits have a succession plan in place.
Many business owners put off developing a succession plan. After all, who wants to admit they may not be here to run the business forever? In truth, the planning process can be a challenge and often brings up underlying issues that must be addressed. In some cases, the CEO may not believe there is a qualified internal candidate to groom to take over the business, while the Board may disagree. In a family business, those in the next generation may not have the same level of interest in the business. Similarly, a deep dive into the succession planning process may uncover process or technology challenges that must be resolved.
Succession Planning Considerations
- If you have a leadership team and/or Board of Directors, engage them in the succession planning process and keep it transparent. Hold a special meeting (or more than one) devoted to this topic.
- Determine what traits you want in the individual(s) who will succeed you. Values and a good cultural fit can make a big difference in the acceptance of this person as a future leader.
- Identify potential successors. Are there internal team members who are ready to take over now? Who would be a good fit and could grow into the role with mentoring? If there is no one internally, start the process of identifying potential external candidates for the role. For family businesses, be realistic about the skill and interest levels of potential successors.
- Groom these candidates, sharing your knowledge and helping them grow. Be open to what you might learn from them, too. As you near retirement, transfer more responsibility to the new leader(s). I do not recommend promising any potential successor they have the job. People and circumstances can change, and you do not want to make a promise you (or the Board) may not keep.
- Keep the plan current. You should review it every year or two to ensure the right potential leaders are moving into place and nothing significant has changed.
Multi-Level Succession Planning
If you are very small, your succession plan may just include the top leader. As you grow, you will want to expand the plan to encompass all key leaders within the company. Here are a few scenarios where multi-level planning would be important:
- The CEO and leadership team are all around the same age. This happens more often than you might think. Unless future leaders are being groomed to take over management of the organization, there can be a large vacuum when the current team all retires in the same timeframe.
- The leadership team is “tied together” such that when the CEO retires, the senior VP (for example) retires as well. This may happen with a family run company where a husband and wife are in the top positions.
- The leadership team often travels together. While infrequent, air disasters do happen and could leave the company without immediate leadership.
An Emergency Succession Plan
Even if you are not fully through the succession planning process, I strongly recommend you have an emergency succession plan in place. Include details that will ensure the business remains operational in the event you become incapacitated or die unexpectedly. Print it out, sign it, and have it notarized, then make sure your Board or other senior managers know where to find it.
Succession planning is a necessity. If you have been putting it off or do not know where to start, contact us today to schedule an appointment with a business law attorney.