Helping you prosper

Succession planning

13 April 2017

Over the last 12 months I have advised and completed on more management buy-outs (MBOs) than ever before. Whatever the motivation, more and more CEOs, it seems, are starting to strongly think about succession planning - a heavily coined phrase - but what does it actually mean?

In short, it is identifying, assessing and developing employees to grow into key roles; generally consisting of seven stages:

  • survival;
  • commitment;
  • recruitment;
  • development;
  • selection;
  • announcement; and
  • implementation.

At the start-up stage, a founder must inevitably devote all efforts to the development of their product and service offering; it’s a case of survival. Once the business has survived this initial stage, a leader should give consideration to their succession plans, regardless of his or her age. And, as cliché as it sounds, failing to prepare is preparing to fail.

When talking succession, an owner must commit to the idea that the business has to continue to function in the absence of any one member of the senior leadership team. In an immediate context this is a case of risk mitigation, but it also has additional beneficial side effects that can act as a framework to aid the development of board members, senior management and the company’s wider strategies.

Organisations cannot survive unless it is staffed with the best people with potential to step into senior roles when the time comes; a key benefit of succession planning is the provision of an on-going analysis of essential recruitment criteria for future leaders. This can be a difficult task for the many owner manager run businesses that make up the majority share of the UK market.

As a company owner or CEO you and your senior leadership team must realise that the planning process is second only to the development process. Developing fellow senior team members, allowing them to grow within their existing roles and allowing them to exercise authority is an essential component of all successful transition plans. It is important to also remember that succession plans do not develop candidates, only development experiences and structured training will prepare candidates for senior leadership roles.

Having developed a successful transition plan and recruited the right people, selecting successors becomes easier. By empowering a broad range of key people, the selection process is simplified and options are enhanced.

The final selection process should include in-depth competency-focused interviews that probe for the skills and talents essential for the role, referencing incites from the candidate's superiors, colleagues and peers. In cases with external candidates many companies will choose to instigate elements of psychometric testing.

Having come this far, it is time for the founder to announce their future plans and introduce a successor. Announcements should detail the reasoning for the successor’s appointment and outline the company’s future plans. It is essential for the successor to show appreciation for an outgoing leader’s legitimate accomplishments to avoid alienating his or her supporters in the company. This gives all parties a clear path to the future with a definite goal.

In implementing the plan, the founder must be prepared to step aside and allow his or her successors to take over. Should an outgoing CEO remain as Chairman, that role needs to be clearly defined so as to not interfere with the role of their successor. If the successor is known to the management team, they must be given adequate time to relate to him or her in their new role. This can be achieved by systematically phasing the successor into senior meetings over the agreed period of time. This will also provide suitable opportunities for the outgoing board member to provide mentoring, feedback and advice to his or her successor.

For further information on this blog, please contact the author Elliott Buss or alternatively please contact your local UHY expert.