The first black-owned investment company on the New York Stock Exchange, Daniel & Bell, which once traded in municipal underwriting worth billions of dollars, was ruled insolvent by the courts in 1996. After the death of the founder, Travers J. Bell, his son, Darryl Bell, inherited the firm. But because the father failed to plan how the business would be run after his death, he had not groomed his son as its successor. Inexperienced in finance and business, the son spent most of the company’s assets rapidly. The courts eventually ruled that the firm and its properties were to be sold to fulfill multi-million-dollar creditor obligations.
It’s not always like this.
More frequently, businesses fall victim to accumulated negligence and a failure to look at the overall health of a company’s composition beyond the financials – a slow burn of neglect and devaluation, a loss of talent, reputation and confidence. More “fade to black” than “crash and burn.”
Despite surveys that show succession planning is the number one challenge threatening a business’s long-term health — ahead of labor costs, health care expenses, finding qualified employees, and foreign competition — only 16 percent of firms have a discussed and documented succession plan in place, according to a PricewaterhouseCoopers 2014 survey.
“The all-important issue of succession has still not been fully grasped or effectively addressed by far too many,” the PwC survey reported.
When queried further, companies that report they have a succession plan in place for some or all senior roles revealed that those “plans” are not properly documented.
“A plan that is not written down is not a plan,” stated the PwC findings. “It’s just an idea, and this is an issue family firms must address with the same commitment and energy as they are devoting to professionalizing other aspects of the business. Without it, the entire enterprise is at stake.”
Tom McGee, national managing partner of Deloitte Growth Enterprise Services, Deloitte LLP considers family-owned businesses to be a huge component of the U.S. economy, and their attention to good governance practices can have an impact on success and failure. “Given that these companies are considered engines of job creation, a sharper focus on governance is important to their longevity, and to the success of our economy as a whole.”
“Many family-owned businesses struggle to maintain their family-owned status past the second generation,” adds McGee. “And while succession planning can be an uncomfortable topic for owners, especially founders, it is critical to the success of an enterprise. By creating a stronger governance and succession strategy, a family-owned business is much more likely to preserve the founder’s long-term vision for generations to come.”
While most succession plans fixate on the financials, the best succession transitions provide a people-focused combination of succession management and leadership development as an integral part of the overall business strategy where they identify and develop high-potential leaders capable of executing corporate strategy. When done right, succession management involves two major functions: legacy management and proactively developing a strong talent pool of future leaders and legacy preservers.
Name Change: Introducing Succession Development
“We see many companies put more effort and attention into the planning process than they do into the development process,” says Marshall Goldsmith is executive educator and coach and author of “What Got You Here Won’t Get You There.” “Succession planning processes have lots of to-do’s — forms, charts, meetings, due dates and checklists. They sometimes create a false sense that the planning process is an end in itself rather than a precursor to real development. Many humans fall into the same trap regarding physical fitness. We have may have fantastic plans in place to lose weight. We may be very proud of our plans, which include detailed daily goals for diet, alcohol consumption, and exercise. And if our execution were half as impressive as our planning, we would be very svelte. Our focus should be on weight loss, not planning for weight loss.”
External Advisory Board
There will inevitably be blind spots throughout the succession process and a crack external advisory board comprised of known and trusted CPAs, acquisition attorneys and strategic cost reduction consultants tasked specifically with scrutinizing succession related activities can help steady the ship and bring objectivity and clarity to what could otherwise be a highly emotional and political.
The Best Succession Development Plan is also a Talent Management and Retention Plan
Succession management requires marrying practices that mitigate risk such as preparing successors, with practices that require risk-taking such as allowing those successors to take on roles they are not quite prepared for, according to Janelle Pritchard and Karen Becker, co-authors of “Succession Management as a Knowledge Management Strategy.” This marriage is essential for continuity though, as the organization has to collect knowledge from the incumbent and develop it in the successor.
Bench Strength Analysis
How does having sufficient bench strength foster innovation and contribute to organizational wellness? If organizations don’t have the right people in the right jobs, they’ll have difficulty carrying out the core operations of the enterprise. But bench strength analysis goes beyond an evaluation of current capability and capacity; it should also anticipate future needs and access whether there are appropriate back-ups for key leaders and associates in difficult-to-fill jobs.
Focus on Legacy Management
It is important to ensure continuity throughout a succession management plan, and one way to do this is through knowledge management. One of the prerequisites for this management of knowledge is the ability to attract employees with knowledge that can be applied within the organization, and to retain those who contribute to the knowledge capital of the organization.
Do you tell your high performance employees that they are an integral part of your company’s succession plan? According to research conducted by the Center for Creative Research, 77 percent of high-potential leaders surveyed reported that being formally identified was highly important to them. Furthermore, knowing one’s status as a high potential has a significant impact on retention.