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CEO Management Succession: 11 Guiding Thoughts

Posted by Tom Garrity on Thu, Jul 7, 2016

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ceo_succession.jpgIt is difficult to begin to think about management succession for many business owners who need to begin.

Consider these 11 guiding thoughts as a starting point:

  1. Transition before it is necessary. Over the years, I’ve seen many, many successful closely held and family businesses where the founder and/or CEO simply would not yield the title and function to capable younger managers. I could tell many stories of CEOs who hang on too long who fail to provide growth opportunities for their children in the business or their younger managers. In a number of cases, the CEO has died in the saddle, leaving the company without strong leadership and without an organized plan for succession. The results range from disruption to disaster.
  2. Transition before you are ready. If you wait for that magic moment when you are “ready” to make a transition, the moment may never come. There are always things to be done and reasons to procrastinate.  But when it is too late, it is too late. Do you need to let go, or to begin to let go, or to begin planning about when you will let go? Begin now.
  3. Link leadership development with succession planning. Over time, leadership skills are gained or emerge. In many companies, natural leaders emerge for a variety of reasons. The long-range process of leadership development for key persons in any company provides valuable input into the management succession process.
  4. Share knowledge with your senior team. Call it coaching or leadership development, but it is a good idea to be in an active process of sharing knowledge and experience with the senior members of management from which will likely come the new CEO. Travel together, meet with clients together, go to meetings together, and so on. As CEO, you may be older than most of the members of your team. They need to learn from your experiences, and you need to learn from theirs. It is through this process that you become comfortable with each other and with your ultimate decision for successor CEO.
  5. Consider potential successors. Most private companies tend to look within for successors, so it is good to be evaluating potential candidates for the new CEO. If you are in a process of evaluating, you can give special projects or assignments to the various candidates along the way. At some point, hopefully, the choice becomes clear. At some point, hopefully, you and your board of directors must decide on one candidate to lead the business. When you feel the time is right, then make the decision.
  6. Set an emergency plan into place. While an owner/CEO may be healthy, happy and productive, bad things happen to healthy, happy and productive people. Every business owner needs to have a will that specifies what will happen to his or her estate upon death. And every business should have an emergency succession plan, even if it is acknowledged to be temporary in nature, in the event of the untimely death or disability of the CEO. It is easier on everyone if there is a temporary plan already in place.
  7. Plan for management succession as a risk management function. From the points outlined above, it should be clear that succession planning is a way to anticipate and to reduce the impact of the risks to an organization that can damage it based on untimely or emergency succession requirements. And remember from the basic valuation equation that lower risk (in the denominator of V = CF / (R – G)), other things being equal, tends to increase value.
  8. Avoid the “just like me” trap. There are a number of reasons to avoid looking for a successor CEO that is just like the older one. First, you might just not get along if you are too much alike. Second, if he or she is just like you, he or she will have the same weaknesses and issues that you have. In all likelihood, your company needs a change. Third, you are the CEO that has brought the company from startup or from wherever when you came on board, to its present situation. Does someone just like you have the skills and attitudes necessary to take the company to its expected better future? To paraphrase a Marshall Goldsmith line, that may be theoretically possible, but it is statistically unlikely.
  9. Develop a succession plan and don’t wait on events. An event-driven CEO succession in a public company is often an unsuccessful process, even with active boards of directors, bench strength in management, and perhaps a history of working through such events in the past. In a private company, an event-driven change, such as the death or disability of the owner/CEO, can be disastrous. Most private companies don’t have active boards, excess management depth or experience with succession. If your board, management team, other owners and employees are faced with such an event, no one knows how or how quickly or effectively they will respond. It is far better to have a succession plan in place, even an emergency plan as noted above.
  10. Figure out the ongoing role for the old CEO. In many public companies, when the now CEO is named, the former CEO rides off into the proverbial sunset. If my experience, in closely held and family businesses, the old CEO is highly likely to stay around. If he stays and meddles, then the likelihood of success is lowered. If he stays and performs an agreed-upon role for the company that does not involve micromanaging the new CEO (!), then good things can happen.
  11. If you plan to transition management to your son or daughter, then do it and get out of the way. Several examples come to mind of CEOs who just never could let go and transition management to the next generation. These situations generally have not had good results. In some cases, the results have been disastrous or devastating. In the successful generational transfers I can recall, care was taken to create a meaningful and non-interfering role for the retiring CEO, or else, Dad just went to the beach and stayed there.

 

These guiding thoughts are here for you. Please share them with your key team members and begin the dialogue. The time is likely right now to at least begin for most baby boomers and many other business owners.

Tom Garrity is the Managing Partner of Compass Point Consulting, Concannon Miller's business consulting partner. If you would like more information on this topic, Tom can be reached at 610‐336‐0514 or tgarrity@compasspt.com.

Topics: Business consulting, Succession planning

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