Four Questions to Ask When Creating Succession Plans

Back in 2007 the The Wall Street Journal published an article titled Too Many Companies Lack Succession Plans, Wasting Time, Talent.

In the article, Carol Hymowitz discussed the importance of succession plans and how “Only about half of public and private corporate boards have CEO-succession plans in place… This is the case even at giant global companies that have thousands of employees and spend millions each year to recruit and train talent.”

Carol’s article primarily focuses on large companies, but succession plans are just as important for SMBs (more on that below).

Does you have a succession plan?

I’ll keep it simple: If your answer is “no”, you should create a succession plan for the key roles in your company. If you die or become unable to work for whatever reason it is important for your business to run smoothly in your absence. A succession plan protects your assets and serves your customers. Being lazy and procrastinating about succession plans is irresponsible.

The Importance of a Succession Plan

Let’s do a quick review: A succession plan is basically your process for identifying and preparing people for leadership roles. It’s your “If I die here’s who will be in charge” plan. It’s also a way to insure your company against unexpected departures among key employees.

Also, a succession plan is not a one-time process. It is an integral part of a company’s culture.

“Succession planning isn’t an event, it is a process best managed over three, five, even ten years…”

— Joseph Bower, Harvard Business School (quoted in the WSJ article by Carol Hymowitz)

Companies who are wisely managed know who takes over for key executives should they leave the company for any reason. Think of it like backing up company data - except the data in this case is people.

Succession Plans are Just as Important for Small-to-Midsize Companies as they are for Large Companies (and maybe even more important)

Many companies, large and small, fail in the area of succession planning. Too many CEOs neglect to acknowledge their own mortality, or lack the humility to properly share the responsibility of their role with a successor. More commonly, corporate boards and company executives simply fail to prepare for catastrophe. When things are going well, it’s easy to procrastinate about preparing for change.

For instance, back in the 2000s, Citigroup and Merrill Lynch didn’t begin searching for replacement CEOs until the moment the current CEO stepped down or was ousted.

Is that surprising? To many people it is. Despite history’s many examples to the contrary, the prevailing notion is to believe large organizations are better organized than everyone else. But it’s often not true. Large organizations are not much different than small organizations when it comes to predicting and planning for problems.

However, large companies do have one advantage over small companies: More resources.

Imagine a small, family-owned business with 25 employees that suddenly loses its CEO to a tragic accident. The CEO essentially ran the company, juggling multiple responsibilities and serving as it’s key representative. Unfortunately, the CEO was not grooming anyone to take over the top leadership role.

Now, imagine the same situation occurs with a large company that has 25,000 employees.

To find a replacement CEO, there are technically more people qualified to run the 25-person business. But the larger company simply has way more resources. They have more money, more people, a larger collective network to draw from, and more benefits. Even if the business is failing, there are plenty of people who would jump at the chance to run a 25,000 person company than a 25-person company. Just putting that experience on a resume is beneficial.

That’s why it’s just as important for small businesses to take succession planning seriously. If the unexpected happens, you owe it to your employees to have a plan in place.

Four Questions to Ask Yourself When Creating Succession Plans

Want to start working on a succession plan, or fine tune your existing succession plan? Start with these four simple questions:

1. What are the key roles in our company?

2. Who are the candidates who could fill those roles in the future?

3. What do candidates need to learn and experience to make them fully capable of performing the key role?

4. How can we schedule activities to train and provide opportunities for the candidates to experience situations that enable them to develop the skills and perspective to fill a key role?

Now, answering these questions will put you on the right track. But you still must adopt the right mindset.

Sitting executives must practice humility and be willing to let go. Surround yourself with people who are willing to offer new perspectives, and be ready to share power with your successors. Consider grooming your successor by promoting them to positions of power, like President or COO, and give them more responsibility. Work closely together and familiarize your board with the heir apparent.

Finally, choose your successors based on their future ability to succeed, not by their past accomplishments. Your company may need leaders with different strengths and talents than previous leaders.

Please consider developing or updating your succession plan as part of your key priorities every year. To be an effective leader you need to be developing others.