succession planning…
(Summer 2002 Edition)
Can the succession
minefield be avoided with a sprinkle of good planning and a pinch of
wisdom?
So much has already been written about succession planning that I was
hesitant to write about it. Would I be able to bring new observations?
Would my comments present a fresh outlook? Most importantly, can I bring
practical recommendations and suggestions about making better succession
plans?
While I may
not be an authority on the subject, during the past 21 years, I have been
part of many succession plans at companies I had the honor of managing and
leading first hand. Also, during the last six years at my young management
consulting practice I was exposed to various degrees of succession
plans. Many of my assignments include the coaching of executives at
private family owned businesses. So, with the hope that you find some
nuggets of wisdom in the next four pages, here goes…
what is succession
planning?
Succession planning is the process by
which an organization plans the passing of the baton from one leader to
another. The passing of the baton is actually a most delicate moment.
Athletic coaches will tell you that races are won or lost by the manner in
which the baton is handed over between runners. Good planning and
execution improve the odds of making smooth transitions. Unexpected
succession and lack of planning increase the chances of failure.
Succession planning is not only applicable
to businesses, it is pertinent to any organization such as governments,
churches, political parties, etc. Any grouping of people and resources
are in need of a succession plan. I will however, for the purpose of this
article, concentrate on succession planning as it applies to businesses.
why succession planning
is important?
First, succession planning is important
because it not only influences the performance of an organization, but
also determines its survival. Many companies have been destroyed by the
lack of succession planning. Several have been significantly set back
strategically because of their poor succession planning.
The Chief
Executive Officer role is the most influential role of the
organization. Whether we call this position the business owner, the
president, the general manager, the coach, the prime minister or the
pastor, the CEO role is similar to the “orchestra conductor”. He
or she might not play any instrument directly but they influence the
entire team’s performance and their role is decisive. Whether the
outcome will be a great symphony or a mediocre one depends largely on how
the orchestra was conducted.
A good
leader successfully leads the organization to its destination; a mediocre
leader just makes it “float”, while a poor leader may cause it to
drown completely.
A good CEO
influences the strategic
momentum and direction of the organization. He or she leads the
team to higher levels of performance, no matter how this “performance”
is measured. In businesses, increased profitability, revenue growth,
attractive return on equity, gains in market share, etc. are indicators of
such performance. In a sports team, championship wins and team
ranking may be the indicators. In a country, economical growth,
unemployment rate, balanced budget, popularity indexes, etc. may be the
parameters and so on. Finally, a good CEO influences the reputation
of the organization.
Secondly, transitional periods are
critical because there is a change of leadership. It is a moment where a
new balance has to be established. A new person will take over and new
adjustments have to be made.
Published research indicates that in
private businesses, 70% of family owned businesses do not survive the
transition to a second generation and 90% do not make it to the third
generation.
These are terrible statistics! Public corporations probably do not score
any better. These days we are witnessing an unbelievable number of large
corporate failures and phenomenal gaffes that puzzle the mind.
But is poor succession planning the source of all these failures? While
not all were due to it, poor succession planning is at the root of the
vast majority. Here is why.
when to do succession planning?
Today’s
business pace is incredibly high. The CEO’s role should “turn”
within a reasonable period of time. What is a reasonable period of
time? Anywhere between 4 to 8 years, in my opinion, is reasonable
and healthy. This range gives enough time to make a difference but
is not too short to call it instability. Any time the tenures of a
CEO goes beyond the ten-year period, the risk of “problems” increases.
I am sure
you will be able to cite exceptions to my rule. Finding the
exception however does not alter my observation. As a rule of thumb,
I strongly believe that today’s organizations need a change at the helm
on a more frequent basis. Complacency is one big reason for the
decline of a corporation. Good leaders are by nature strong
people. Strong people with time have a tendency to become “Kings”.
and what’s wrong with kings, if they are good you ask?
Kings are
usually unable to choose successors and do not like to share power with
others. These two reasons by themselves constitute fertile soil for
complacency. In addition, Kings do not like active boards because
they fundamentally dislike being accountable to others. They are
usually the “center” of everything.
Need examples? Just in the last three
months or so, so many corporations suffered humbling destinies: market
devaluation and the wiping of billions of dollars of equity (major
telecoms), outright bankruptcies (large department store), marketing
defeats at the hands of newcomers (important computer manufacturer),
corruptions (major conglomerate), financial debacle (major utility
company) and even fraudulent actions (energy company), etc. The list goes
on.
Corporations
that had everything required to succeed. Why this outcome? Simply
put, many good CEO’s became Kings and did not know when it was time to
pass on the baton and most certainly, Boards of Directors that fell asleep
at the wheel.
Poor
succession planning is not a “disease of small organizations”.
It is a disease that infects the small as well as the big. It
contaminates public and private businesses, governments, non-profits,
churches, etc.
Here is a
very “real” scenario: A strong leader does a wonderful job. Once
he/she achieves high performance, glory is earned. This glory is
brief, however, and the performance must now be sustained. They work hard
at putting the wheels in motion to sustain the performance and they
succeed, initially. Organization complacency sets in, “large egos”
and “emotional prides” come into play, less “listening” and more
“directing” takes hold of the top of the organization, etc… Slowly
but surely things do not go as planned… What does the leader do?
They start to do whatever it takes to sustain the high performance.
Something along the lines of “.. by hook or by crook..” This is
where a “clock” starts to … Tick… Tock… Tick… Tock… It
is only a matter of time before the bomb explodes. What does the
bomb look like? Restating earnings… overpaying for businesses that
have vanishing equity… building debts that cannot be repaid…
attempting to fix mistakes by making others… and yes, up to fraudulent
conduct as we have seen so much of recently. All this is done, with
the “blessings” of their board, of course, since the board was sound
asleep.
succession
planning is an absolute necessity
Every organization must have a succession
plan. Large organizations will have an elaborate one. Small ones will
have a simple one.
A plan that is made in advance and has
been reasonably thought through will help make an orderly transition. A
no plan scenario and/or one made hastily in response to an emergency - and
condensing the time of action - will have a high chance of failure.
strategic
perspective
Succession planning must also address the
strategic context of the organization. Meaning that if the present
leader, for example, did a good job turning around the business in the
past, the next leader will assuredly need a different set of skills; those
of building the business. A business that had a strong record of
consistent earnings growth would benefit from an innovative leader who can
take the organization to the next level.
In short, a
succession plan must plan for the future rather than copy the past. A
common pitfall is when an organization wants to find a leader similar to
the one they have. Another, is when organizations “fall in love”
with the incumbent to the extent that they “do not want to rock the boat”.
The former happens with the retiring CEO while the latter may apply
as a result of an emergency such as a “heart attack”. Don’t be
afraid to rock the boat if it is the right thing to do.
You are better off rocking your own
boat inside the harbor than sailing into the high seas unprepared and
having the waves do the “rocking” for you!
a process - not a
destination
The search for candidates should take a
balanced approach too, meaning looking for successors from within
and from outside the company. Depending on the context of the
organization, there are pros and cons for internal vs. external
candidates. Good succession plans are not made effective overnight. They
take time to be made, planned and executed. This is a process and not a
destination. A good succession plan is always a work in progress.
family owned businesses
For family owned businesses wishing to
keep it in the family, sometimes a separation between ownership of the
company and management of the company is needed. As the business grows, a
separation is not only healthy but is also desirable.
expertise, independence and
objectivity
This may be self-serving, but it is of
paramount importance to seek independent and expert advice. Experts bring
wisdom and the benefit of past trials and errors. External experts also
bring objectivity to your organization.
Please
remember “the value of advice is in direct relationship to the
expertise of the giver and in indirect relationship to the degree of their
involvement or interest”.
Proverbs 12:15 says: “A wise man
listens to advice”. You may not always agree with the advice that
is given to you. That is OK, but it is important to listen.
advisory board
An advisory board made up of independent
and external counselors allow the owner/operator of the business to
receive regular business advice and counsel without any dilution of
equity.
The
advisory board can then “push” the organization to excellence by
requesting that a strategic plan be made, a succession plan be
implemented, quantifiable financial targets be established and so
on. This disciplined approach is certainly helpful in keeping
management on track and in building shareholders value.
conflict of interest
All too
often, we read about the directors who also provided services, the
auditors who were also the consultants and the public servants that
enjoyed these so called privileged relationships with third parties. This
is conflict of interest. Be watchful and do not compromise on
principles. Making exceptions on the ABC’s of business
fundamentals and Ethics 101 will return to haunt you.
The bottom line is: a succession plan is a
necessity and not an option. Good planning includes a broader outlook,
expert advice, common sense, objectivity and business flair. Approach it
as a process rather than a destination and you will pass through the
succession minefield safely.
