Succession Planning in SMEs
Many smaller companies (and larger ones as well) have no formal succession plan. Meaning, no real plan at all. This is especially troublesome in privately-owned companies and family businesses where top management is the founder or a family member of the founder. Successful entrepreneurs and business leaders tend not to think in terms of their incapacitation or ultimate demise, as if they expect to lead the company forever. And as strong doers, they also have trouble envisioning anyone else—even sons, daughters, grandchildren or in-laws—taking their place.
If your company doesn’t have a plan, you’re not alone. The 2015 PwC US Family Business Survey indicates that only about one-third of family businesses have an appointed successor, and only 27 percent have a robust and documented succession plan for senior roles. Many of them, however, do have looser plans in place.
Every company should have a succession plan in place to ensure the continued success of the business beyond the tenure of the current executives. Further, a successful succession plan should include on-the-job training, often called ‘grooming,’ of the next generation of corporate leaders so that they are ready to step into the leadership roles when the time comes.
Stephen A. Miles, a managing partner in the Leadership Consulting Practice at Heidrick & Struggles, and Nathan Bennett, professor of management at Georgia Tech, call out 5 best practices for succession planning in a 2007 article on Forbes.com.
In the article they state: “Hand-offs from one leader to the next are tricky because of the politics and intrigue that surrounds them, the complex nature of the CEO position, and the dynamic nature of companies. For that reason, they represent a time when the company is vulnerable. By crafting a thoughtful, strategic approach to succession, the board fully addresses its governance responsibilities and sets the new leader on a firm course toward future success.”
Their recommendations start with analysis to develop a solid understanding of the challenges the company is expected to face in the foreseeable future and the skills needed to face those challenges. Beware that the skills needed to carry the company forward are not likely to be the same ones that brought the company to its current state. In other words, a clone of the current executive is probably not the best choice. As an example, they point out that GE‘s past three CEOs (Reg Jones, Jack Welch and Jeff Immelt) are starkly different people who have been able to help the company change with the times.
Once the leadership-in-waiting is selected, development begins. For an external candidate, it might be best to bring a potential CEO in through other positions, to not only increase the company’s bench strength, but also to get a chance to better understand the candidate’s strengths and weaknesses. For internal candidates, identify a small number of people who could be made ready in two to four years. Since succession often happens with little or no notice, it’s hardly ever possible to time the completion of development to perfectly coincide with the transition into the top role. Nevertheless, use the development interval to rotate the candidate(s) through different functional areas and international assignments, if applicable.
There is always risk for the company and the candidates, of course. A candidate can easily become frustrated and seek other opportunities if the job is not ready when the candidate is. For the company, development may not be far enough along when the transition must take place.
Whether or not the identity of your next CEO is known, your company’s continued success might well depend on the planning, development and transition process surrounding a change at the top. Does your company have a documented or informal transition plan? Do you know who will likely be able to take over on short notice? Is the board comfortable that the business can be continued, uninterrupted, if new leadership is required?