A well thought out succession plan is a primary risk reduction tactic for any company. Just as we buy auto and homeowners’ insurance to cover our personal risks, a succession plan reduces the risk from many unforeseen events that can threaten the long-term health of a company.
Long-term corporate health was a primary goal when we were asked to address the succession plan for a family-owned manufacturing company in the Midwest. We had been brought in to lead the process of restructuring the organization, including the creation of the corporate strategy and driving that strategy through all divisions. As part of the long-term plan, succession was addressed.
The CEO was third-generation and probably, truth be known, didn’t want to be there. None of the next generation was old enough to work in the business. We helped to design a parallel succession plan. One side of the plan had each key position filled with hired executives. The other side of the plan had each child given a chance to work in the company as s/he was growing up. The child later had the opportunity to decide if s/he wanted to join the company. Clearly this was going to take a number of years due to the young ages of the children.
It was a good and solid plan. It gave each child an opportunity to gain work experience and learn the business while earning some money and building a resume. It left the business in the hands of professional managers that kept it running smoothly. When any of the children were ready, the company would be healthy and prosperous for the next generation.
This example illustrates that a solid succession plan needs to be tailored to the company and situation. It is a strategic issue to be dealt with as part of the strategic planning process.
The culture of a company has a major impact on the succession plan. In the best companies, part of the job of every executive and manager is to have their replacement in training waiting in the wings. Those who don’t won’t be promoted. No successor, no promotion.
In the worst companies, where competition and back-stabbing is the norm, people are so afraid of losing their jobs that they don’t want to share their intellectual capital. So when someone leaves the organization, the intellectual capital goes with them and the next person has to reinvent all of the wheels to get the job done.
Establishing a culture of sharing and succession starts at the top. Whatever the reward and compensation system is, reward the results you want. If you want to have successors trained for every key position, then part of the manager evaluation process has to evaluate successor development with compensation awarded accordingly.
The strategic plan is the document that gives the company a road map into the future. As part of the strategic plan, the succession plan defines who will be in key positions to guide the organization on this path.
According to the American Management Association, 75% of respondents say that succession planning is critical, yet 23% of executives say that they don’t have any succession plan at all — and almost half don’t think that theirs is adequate.
What is necessary to ensure the future of the company is a good succession plan, a process to make it happen, and the people in place who can step into the various positions and hit the pavement running, preferably without skipping a beat.
What would you do if, as at one production company client in the NE, your top executive walks in one day, throws his resignation on your desk, and walks out — never to return? This CEO picked up the phone to call me, and I was on a plane 2 hours later. Luckily, we had anticipated this type of occurrence and had taken the time to prepare. Everyone followed the plan and the negative impact was minimal. If they hadn’t been prepared, the negative impact would have been much greater.
Here are the steps you need to take to get the momentum going:
- Make a list of the top 10 to 20 people in the organization. It may be more if the organization is large or fewer if the organization is small.
- Next to each name on the list, write the most important contributions that their positions make to the organization.
- Make a list of people who might be able to step in to fill the shoes of your top people if something happens.
- Find the people gaps where no one is on board to take over a position.
- Find the knowledge, experience, and training gaps where there might be some candidates, but no one person has all of the elements necessary to fill a particular position.
- Create a plan that has you filling in the most important gaps first and continuing until every key position has at least one person who can step in to keep the ship on course.
No time is better than right now to get started. At your next manager meeting, play the succession game. Create a scenario, form teams, and see how your managers handle the loss of a key member of the team. The game is most illuminating if the loss is in a gap where there is no easy answer. You may be in for a real awakening.
Dr. Sarah Layton is CEO and Managing Partner of Corporate Strategy Institute, Inc., headquartered in Orlando, FL. You may contact her at email@example.com or call her direct line, 407-342-6507.