Throughout 2022, trends such as the Great Recession and Quiet Quitting were rampant. In 2023, retaining top talent and planning for succession are critical for business leaders to avoid disrupting the growth of their organizations.
Succession planning is not only about determining your organization’s next leader, but also about creating a continuous process that assesses organizational needs and builds a climate for an executive to succeed. An effective succession plan must be linked to the organization’s strategic plan, mission, and vision.
All organizations need to prepare for the following scenarios:
Typically, executives and business owners do not plan their exit strategy. Here are two real-life examples of what happens when there is no succession plan in place.
The CEO of Company A was traumatized when his best friend died over the weekend. On Monday morning, he came into the office and declared that Friday would be his last day. Apparently, this tragedy made him realize that life is too short, and he needed to find a more fulfilling path.
The 62-year-old owner of Company B built the company from $600,000 in annual sales to a $30 million powerhouse over 30 years. The owner has four sons (three of which were active in the business) and a daughter. The owner decided he was ready to step down but wanted the son who was not involved in the business to take it over as CEO.
Some lessons to be learned from these examples are:
The business owner and / or the organization’s board of directors are responsible for overseeing the transition of an executive leader and ensuring that the organization is well positioned to successfully continue its operations during a change in leadership.
Poorly managed executive transitions can reduce organizational sustainability and effectiveness. In worst case situations, poor transitions also can put an organization out of business. Here are two examples of what happened when the owner suddenly died, and a family member took over.
The 52-year-old owner of Company C was athletic and worked out daily. One day, leaving the health club, he collapsed and died on the steps of the fitness center. The owner’s wife, who had not been involved in the business, assumed the leadership role. After two years, she sold a list of the remaining customers to a competitor, who only hired one of her former employees to provide continuity to the existing customer base.
Company D had been profitable for a long time when the owner suddenly died. The owner’s wife and son-in-law assumed ownership and operation of the business. Unexpected wage inflation resulted in a significant drop in profits, and the owner hired an investment banker to sell the company.
Step 1: Make the decision and commit to the timeline.
Step 2: Communicate the decision.
Jane had begun to feel that her enthusiasm for new and innovative ways was overshadowed by the weight of carrying the leadership role for 18 years since her firm’s founding.
As her heart had begun to wander, Jane recognized it was time to transition her leadership. She knew that organizations need a fully committed leader.
As she looked 3-5 years out and weighed both organizational and her personal goals, Jane decided to allow a full five years for the process of extracting herself and identifying and preparing others to fill her role and the responsibilities she owned. Although the strategy made sense, it was a tough commitment to make as she felt she was giving up her security and part of her identity.
However, when Jane communicated her plan to the appropriate authority, she relied upon the trust and transparency of the organization to create a win-win scenario allowing for continuity and growth. In time, her energy shifted away from fear and toward possibility.
The successful succession plan took 3 years to develop and another two years to execute.
Step 1: Conduct a leadership assessment.
Step 2: Set goals and action steps to address any gaps discovered through the leadership assessment.
I was hired to coach Richard, a nonprofit COO who was tapped to be the next CEO.
We began the engagement in March 2021 (4+ years prior to transition). Richard set the following objectives for the coaching engagement:
I conducted a leadership assessment in addition to a 360-feedback assessment which confirmed Richard’s fit for the CEO role. Richard then created action steps to support the following goals.
An effective succession planning process requires collaboration between board members, the incumbent executive, and key staff members. The planning should be completed, and a plan adopted years in advance of any departures. This will help create a strong foundation and conditions for a successful executive leadership transition.
Furthermore, success depends on clearly defined roles and responsibilities among the board, the executive, and staff. Properly outlining responsibilities and communicating them prior to the planning process will help alleviate concerns among those involved.
In addition to planning for an executive’s departure, succession planning is a powerful retention tool essential to keeping high potential employees engaged and invested in the business long-term. As a strategy for developing the businesses’ next line of leaders, succession planning shows the organization’s investment in its employees’ futures.
There are four components of an effective succession planning process:
Studies show that employees want development and career growth opportunities, so it’s important for leaders to identify the organization’s high potentials and begin conversations about future growth before employees look externally to find that investment.
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