Privately owned businesses are a key part of business in the US. However, many small businesses consider what will happen to the business once they retire. Most of the time spent in the business is related to building, hiring the right people, working against the competition, but rarely succession planning. This is a misstep that should be corrected. Most business owners don’t want to address succession planning because it reminds them of having to retire or even that they will someday pass away. Successful business owners cannot imagine anyone else running their business, so they don’t address the issue. With that attitude the potential for a business to have to close when an owner passes away or retires due to health issues, then there is no time to plan. Succession planning needs to be done now.
• Succession planning is a multi-faceted and complicated subject.
• Owners know any succession selection will likely isolate those who are passed over, potentially offending key people in the organization.
• If employees include the owner’s family members, family dynamics-good and bad-will be drawn in, making most owners anxious about succession planning.
• Most business owners don not know how to manage it.
Benefits of Effective Succession Planning
Succession does not always progress as the owner imagined. There is the likelihood that the owner may suddenly die, become disabled, or receive an employment offer that will force the owner to leave the business. Strong succession planning offers stability not only for the future of the business, but also to bankers, financiers, suppliers, vendors and customers. It helps to conserve and shield one of the most important of business assets-it’s people. The people possess experience, knowledge and intellect which is critical to the ability of the business to remain a going concern.
It is the responsibility of the board or others who are in control to make succession planning a priority, many times the decision might override immediate and substantial issues. In addition to being necessary for risk mitigation, succession planning provides some specific benefits:
• It provides a framework that drives senior executive improvement, aligning leadership at the top of the business with the strategic plans of the firm.
• It gives the CEO, through an ongoing examination of the job requirements, the occasion to fine-tune his or her role in light of changing business factors and strategic essentials.
• It strengthens the connection of information between the board and the senior management team through habitual contact that is part of the board’s appraisal of candidates.
Perform habitual, in-depth reviews.
The succession plan should be reviewed twice a year, including an assessment of the appropriate bylaws and succession processes and a review of the baseline competency requirements for the next CEO-a working document that recapitulates the requirements if the search for a new CEO were held immediately.
To establish those requirements, the board should begin by examining company trends and strategies over a five to fifteen year period, considering the impact of various circumstances in which the business will be affected by challenges including supply chains, customers, competitors and investors, or the hazards or prospects brought by changing environment and fiscal conditions. Looking at the impact of broad developments such as these will help to ensure that the company’s next principal will have the capacity and experience necessary to react to unfolding multifaceted events across numerous fronts. The board should also use this occasion to analyze successful CEOs from inside and outside the industry and identify characteristics that have contributed to particular success.
The board then refines these considerations into a set of requisite capabilities. Depending on the company’s situation and strategic direction; some capabilities will be considered essential and others of secondary or little importance.
Evaluate the list of candidate qualifications against the firm’s senior management.
The board should be updated semi-annually with a list of internal candidates who could assume leadership through the succession plan. The leadership development plan of each candidate should be updated as well. If there is not an internal candidate from which to choose, then recruiting from external candidates should be done. If recruiting externally, the choice needs to be made at least three years prior to the changeover thereby allowing the candidate ample time to learn all of the aspects of the business.
Qualities of a Good CEO.
When considering potential CEOs or replacement principals for the company, such nominee(s) should have the following characteristics.
A good CEO or leader of the company must be able to accurately convey the vision and mission of the company in order to allow staff to follow suit. Everyone in the organization and external stakeholders also will seek proper direction from the leader.
The CEO must understand the internal workings and activities of the business in every way, but should not become involved in micro-managing the business. The CEO must have or must develop a highly trained management team that will handle these tasks. The CEO will thus be able to focus on the primary duties of increasing revenues and meeting the goals of the company.
In order for the CEO to ensure that the direction the company is taking is in line with the vision and mission of the company, the CEO should become aware of progress within the industry and how the progress will affect the company. Trade conferences and trade associations are essential for aiding in this knowledge. The CEO must identify any present or potential threats to the company and know how to overcome them. Capitalizing on future opportunities is equally important.
The company must provide to their CEO a strong management team which is capable of running their aspect of the company and is accountable for his or her responsibilities. Managers should not attempt to do the work of other managers unless specifically advised to do so by the CEO, and then only if the other manager is not performing adequately. Strong managers know how to train their staff and to acknowledge the accomplishments of their staff which will keep them motivated toward meeting the goals of the business.
A successful CEO can focus on and find ways to help customers solve their problems. Products are described in the ways in which the address the needs and challenges of the customer rather than on the product’s capabilities. The CEO should meet with customers periodically to obtain suggestions from them on how to improve products while obtaining an understanding of the customer requirements for a strong relationship with the business.