In business there are few greater questions than what comes next. This is especially true in family companies, where work is always personal, despite what management mantras might try and teach us.
Succession planning is all too often left to the last minute or, worse still, until it’s too late. Between rivalries and personal agendas, it’s understandable that the sensitive nature of passing a life’s work to the next generation is a topic that most people want to avoid. But time waits for no-one, and one day the question of succession will be upon family business owners regardless.
Marc Emmer is President of Optimize Inc, a growth consultancy specialising in strategic planning, and the author of Momentum, How Companies Decide What to Do Next. He explains how succession planning has been left from our vocabulary: “Our business culture does not promote candid conversations and the lack of structured performance management systems exacerbates the problem,” he says. “While uncomfortable conversations like these are entirely necessary and can unearth a litany of complicated legal and tax issues.”
With that in mind, here are Marc’s eight steps to consider when planning for your company's eventual succession process.
1. Set specific, long-term goals for ownerships
Planning should begin years before any succession takes place. During the process, both the current owner and any potential successor should set out their long-term goals for the business. Ask what you can do now to help those future goals be met. The more closely aligned your goals, the more seamless the transition – which will help both on a business level, and a personal one.
2. Establish a set of managerial competencies
Draw up a list of the skills that you believe are essential in your role as company owner, and that are must-haves for any successor. This could be an eye for innovation, financial acumen, team management skills or, more likely, all of the above. This checklist can then be used to assess any potential successor, as well as help your current team understand what you're already bringing to the company.
3. Evaluate the management team
Who are the team around you, and what are their standout skills? Sometimes it takes an outsider’s eye to accurately map the talent in your departments, as well as to spot skill gaps. Consider hiring a firm to evaluate top level managers.
4. Debrief the assessment
Analyse the findings of this managerial evaluation against your checklist of required competencies. If any of the people you had in mind are lacking in some areas, then consider training programmes rather than writing them off completely. Offering development opportunities can be a handy way to assess if employees are moving in the right direction. And you never know, people who you never had pegged as a successor may reveal themselves as candidates, if given a chance to shine.
5. Seek out high-quality legal and tax advice
Transfer of ownerships come with significant legal and tax implications. Depending on whether you plan to give the business away, sell it, or transfer ownership in your will or through a trust – there are laws around tax avoidance and capital gains that, if not navigated correctly, can land you with sizeable bills. Always consult with quality tax and legal advisors, ideally long in advance of any succession commitment, as long-term tax planning may help ease future costs.
6. Create a robust performance management system
It may not be now, but stepping back from the business little-by-little – rather than leaving at once – can be a great way to help ease the transition period and help a successor bed-in. However, this process takes planning and, above all, a team who can pick up some of your owner’s responsibilities while you’re away. The best way to do this is to train your managers on staff accountability when it comes to their performance and business outcomes. With other people then concerning themselves with these daily operations, you’ll have more time to focus on topline decisions and the succession process.
7. Identify the successors
Once you have evaluated your management team and assessed their skills and performance, it’s time to start speaking with your top people about their careers. These discussions will need to be both candid and confidential if both sides are to feel comfortable. Consider employing an executive coach to help you identify which candidates are saying all the right things.
8. Handcuff your best people
These steps will only work if you’re able to keep the best talent in your company. That means providing incentives not only for senior managers to stay put, rather then jumping ship before you leave, but also to ensure that talent lower down the company has a path to commit to.
Helping senior managers to progress through your company will allow them to gradually build the skills needed to assume your position. Promotions will create loyalty while providing a clear career path to your best staff. Not only that, a focus on talent instils a sense of purpose within your own role, setting them on the path to taking over the top job one day.
“Timing is everything, and it is essential to think clearly about when to pull the trigger on transition,” says Marc. “Such decisions are vital to the sustainability of a company. They warrant methodical planning and thoughtful execution.”
Succession planning is just one area of business where executive coaching and private advisory groups can help business leaders. From culture to growth to leadership to work life balance, no topic is out of bounds. For more info on Vistage - head to our ‘why Vistage?’ page.