By Richard A. Berkowitz, JD, CPA
You are an entrepreneurial Boomer-generation business owner, and you are facing the daunting challenge of selecting a successor to lead your life’s work. You have arrived at the conclusion that this may be one of the most difficult decisions you will ever face. Whether you intend to pass your legacy to a family member or to a member of the business’s next generation of senior executives, you must begin planning early for a smooth transition of management and innovation that will sustain the business and provide a steady income stream for you and key stakeholders for multiple generations.
As technology threatens to disrupt your well-thought-out succession plan, your business will require extensive management and, most likely, revision. Following are considerations that founding owners should address when preparing their organizations and themselves for a smooth succession of management to the next generation of leaders.
Develop a Pipeline of Future Leaders
You understand that it is not enough to recruit and hire the right people; you must also provide appropriate tools and support to help employees develop their talents and move their individual careers and the organization forward. The more prepared workers are to step into leadership positions, the smoother management transitions will be for the entire organization.
Employee-training and leadership-development programs are critical elements that will enhance a company’s culture and its ability to recruit and retain multiple generations of future leaders. Helping your team members hone their technical and soft skills demonstrates your commitment to support their success. When you invest in these programs, you provide a clear path to career advancement and incentivize your team to take on more responsibility. Performance and prospects for advancement are based on well-defined and objective criteria that promote the right team members into leadership roles. Your team will most likely stay engaged in pursuing their careers and aligning their professional goals with those of your business while supporting the business’s efforts to move forward and grow.
If you had to walk away from your business unexpectedly, or if you became ill, would your employees know who to turn to for leadership? Would the selected executive be able to lead the organization and ensure continuity of services? Would the strategy and culture which served as a foundation for your business’s success be preserved?
When leaders are given adequate time to develop in an organization, they have the advantage of receiving many years of hands-on mentoring and guidance from their predecessors. This allows them the opportunity to integrate slowly into management positions while testing and refining their capacity to lead. It also provides them with the time to build and enhance their relationships with coworkers, clients and other stakeholders upon which the business’s continuity, and profitability, relies. As each generation of workers moves up in an organization, they develop their own support teams and mentor and empower the next generation to innovate and steward the business into the future. The greatest challenge of great leaders is to develop great leaders.
From the perspective of founding owners, developing a pipeline of future business leaders improves the likelihood that their legacies will be preserved and the corporate culture and value that they created will be protected and positioned to face the relentless competition every legacy business faces. The larger the talent pool of capable successors, the easier it will be for the founding owner to step into an advisory role and eventually transition out of the business, if that is his or her ultimate goal.
Understand that the Path to Retirement and Management Succession is a Process
Before even thinking about a succession plan, you should first consider your ultimate needs and goals for the future and balance them against those of the organization you built. Are you looking to make a quick exit or merely slow down and cut back your hours? Is the transfer of management expected to result in your relinquishing control of the business or refocusing your role in the organization? How will you be compensated before, during and after the transition process? Will there be a buyout and an employment contract or alternative structures to accommodate your needs?
The transfer of organizational leadership is not a single, isolated event in a business’s life cycle. Rather, it is an ongoing, multi-phase process that requires many years of meticulous planning, coordination and implementation across multiple levels of an organization. Businesses must commit a significant investment of time to assess and prepare their processes, operating systems, resources and people for the transition while addressing a broad range of unexpected circumstances that can delay or impede a well-thought-out plan.
Similarly, it is crucial that you prepare yourself for the roles you will play through all phases of the management-transfer process. You must tread carefully to support and mentor your incoming CEO without letting your power overshadow your successor’s efforts to lead and effectuate change. This requires that you have faith in the next generation’s abilities and give your successor the room to make decisions that effectively guide the business’s future. While you should willingly loosen your grip on the company’s reins, you should by no means step aside. You may want to intercede when you perceive a major problem, but you must get comfortable watching your successor make mistakes because that will be the final step in his or her assumption of power. You made mistakes, and you know that the formative moments came when you resolved those mistakes. You can provide great value moving your organization forward when you transition into an advisory role and are able to fill in gaps that affect the organization’s operations or long-term strategy. You must be careful to avoid becoming an anchor by imposing your influence inappropriately and impeding your successor’s ability to adapt and innovate.
For example, you may remain active in a business’s recruitment and employee-development programs in order to keep the pipeline of future leaders full and ensure that new hires have the depth of knowledge to weather any storm and steer the organization forward. Yet, you must also be careful to take into consideration that new leadership may have their own idea of the type of talent they will require for the business to be successful going forward. You may also focus your attention toward raising the visibility of your business’s brand, cultivating new and old business relationships, or sharing your knowledge and leadership with non-profits and civic organizations. While your responsibilities will change, you may find your schedule just as full as it was previously. Yet, because you will not be mired in the day-to-day operations of running the business, you may gain a new perspective that will enable you to identify new opportunities to support company culture while sustaining your organization into the future.
Make it a Priority to Regularly Review and Refine Succession Plans
Even with the best-laid plans, financial conditions and life circumstances can put a significant dent in your path to retirement and wreak havoc on an organization’s leadership transition. To avoid these scenarios, businesses should begin succession planning as early as possible and consider their plans to be dynamic and evolving strategies that require regular reviews and modifications to adapt to external market forces and/or shifts in the business’s own operations. Failing to update these plans and manage any part of the succession process, including the selection of a successor, can come at a very high cost in terms of lost clients, lost revenue and loss of income for founding owners and employees.
PKF Advisory guides companies of all sizes on succession planning techniques and conducts exit strategy discussions with business owners and founders. Our experience can be a valuable asset as you work through these issues and set the stage for a successful transition. If your organization requires business consulting, growth strategies and succession-planning services, contact:
Richard A. Berkowitz, JD, CPA
954.712.7000 | email