Most Companies Are Clueless When It Comes To Succession Planning


Many are uncertain if devoting time to succession planning is a good idea when considering the future of a company.

When John Bliss, founding principal of BlissPR, a media relations firm based in midtown New York, decided to step down, after 35 years of service- the company was ready and prepared.

Unlike many, Bliss started planning for succession almost 15 years ago, by creating a management committee that comprised of himself and three senior executives. The same management team that made BlissPR one of Crain’s best places to work?

‘Succession is not something you do overnight,’ Bliss admits. ‘The [group] had been making financial, operational and personnel decisions for a decade and a half.’

On the other side of the realm, the multinational corporation and famous designer of consumer electronics, Apple was recently hit with a succession dilemma when CEO Steve Jobs became ill, leaving the boardroom in a flurry of worries over who will sit at the helm of the tech giant should Jobs be unavailable. Now, the company’s shareholders are planning on voting on a proposal that would require the firm to ‘disclose a written and detailed succession planning policy,’ in the event the CEO falls ill again.

Whether big or small, its not easy passing the torch from one generation of a business to the next. Without sufficient planning, the probability of a business successfully passing on batton is relatively low.

A recent Harris/ Decima report reveals that only 46 per cent of business owners are thinking about a succession plan or already have one in place, while a vast majority (80 per cent) have yet to identify a successor for the CEO should he or she leave unexpectedly.

‘Succession planning is not something that can wait until the last minute,’ says Erica Kuhlmann, managing director of Harris’ Food & Consumer business. ‘In the end, a well thought-out plan could be the difference between a smooth transition and a turbulent handover.’

An obstacle for growth

As companies begin to position themselves for future growth in light of the uncertain economic recovery, some feel that not having the right leader for a business could thwart expansion efforts.

In a new survey released by Towers Watson, a global professional services company, some boards are attest to experiencing a spur in sudden concerns among members over a corporation’s ability to plan for an orderly replacement of talent.

The Towers Watson Strategies for Growth study reveals that more than half of the respondents worldwide, cited that the loss of talent could hinder the company’s future growth possibilities. However, fewer than 49 per cent see the lack of succession planning as a top challenge. By contrast, about 21 per cent of the companies involved in the study proclaimed to have sufficient capability for succession planning.

‘The global lack of a sufficient governance capability in talent management and succession planning is a real concern,’ explains Nigel Bateman director of international consulting at Towers Watson. ‘Particularly since the least prepared organisations will find themselves at a significant disadvantage over time.’

‘With talent worries looming large, there’s little doubt that getting the pay/performance equation right can deliver benefits across the board,’ says Ravin Jesuthasan global head of talent management. ‘[Thus] giving companies the ability to keep top talent, have a sufficient pool to draw on for succession planning and have an easier time attracting the necessary talent.’

What about a family owned business?

The Institute for Family-Owned Business states that about 80 per cent of businesses today are owned and operated by two or more members of the same family. While some rewards of financial and emotional stability can be reaped over time, the ultimate challenge that hovers over a family owned business is to balance tradition with innovation.

In a study conducted by the University of Texas at San Antonio College of Business (UTSA), more than half of Hispanic-owned businesses plan to pass on its name to the next generation. However, less than 20 per cent report on having a succession plan in place. The survey points out that 56 respondents are left unprepared to transition their businesses to family members.

Ironically, the survey respondents indicated their fear of not being able to meet long-term financial goals, and they wish they knew more about the subject, UTSA said. Even though they recognise the importance of financial strategies, and understand that implementation of such a strategy [succession planning] will increase their fiscal health, only 38 per cent have created a documented plan.  

‘The lack of succession planning is particularly disturbing. Too often we’ve seen successful business shutter once the business owner dies or becomes ill,’ says Frank Woodruff, chief executive officer of Sapient Financial Group.

‘Hispanic entrepreneurs are busy people, and as they focus on their businesses, they need help creating a structured financial strategy,’ says Ramiro Cavazos, chief executive officer of San Antonio Hispanic Chamber of Commerce. ‘We know that all business owners need a succession planÖ when Hispanic business owners plan correctly for the future, they become successful in carrying on their legacy through their designated loved ones.’

According Barbara Bowes, president of Legacy Bowes Group, a recruitment firm headquartered in Canada, having a succession plan in place for family owned and medium sized businesses offers a better opportunity for high performing individuals who wish to ‘buy’ in. However, ‘in most cases [business] owners do not want their plans to leak out because it may well affect their business,’ she explains.

Bowes recommends that organisations of this sort design a plan where the executives skills are assessed then compare the results to their plans for the future. ‘Do they currently have the skill set needed and where are the gaps?’ she asks. ‘Possible owners should be cross training as any staff as they can.’

Thinking ahead

Judging from Bliss’ experience, it is evident that most companies tend to stick to the internal talent integration process. They see a major investment when developing systems for assessing current employees, while maintaining the job ladders for promotion.

Alaska Communications, a broadband, wireline and wireless solutions provider, recently announced its most updated CEO succession plan. Liane Pelletier, currently chairman, CEO and president of the organisation is set to transition her role to Anand Vadapalli effective early 2011.

Vadapalli joined the firm in 2006 as senior vice president and over the years he gained an increasing amount of responsibility across the organisation then was promoted to COO last year.

Some companies like CSM, a global player in bakery products, utilise technology to aid the succession process. The Netherlands-based organisation recently implemented Cezanne Software, a succession planning and performance management system that allows the company to recognise employees strengths, performance and other skills.

The software comprises of inbuilt reports, gap analysis and queries that equips CSM with knowledge about its current talent pool. For example, managers will be able to log on to the system, then immediately see the status of their current management in terms of the level they are at now and their potential for the future by helping them to identify possible problems with the leadership pipeline, the company said.

‘The system will help us to get an insight into our global population for talent management, succession planning and performance management,’ explains Renate Visser, CSM’s human resource development manager. ‘Being able to carry out effective succession planning across a global business like ours without a software system is virtually impossible.’

According to Bowes, it should be made mandatory for ‘a business owner [to] always train a second in command [and] this means delegating as much as possible so that when the owner is absent, the business can continue.’

As for larger organisations, like Apple, an effective succession plan entails naming a number of potential successors ahead of time to ensure a smoother transition.

‘I recommend that the owner name at least 3 people for each job and then determine what skills and training would be needed for any of these individuals to take over,’ she says.

‘Then develop a training plan over time to make this happen whether someone is ill for 6 weeks or 3 months, quits and/or suddenly passes away, at least some or all of a particular job can be filled by someone else.’

Bowes assures that once a backup plan is in place, it would eliminate any stress and anxiety generated by employees within the organisation.

‘The sudden exit of an organizational leader can be more than just a surprise, in fact it a sense of disruption that must be immediately addressed. Failure to do so will result in an environment of instability that may cause highly talented employees to search for security elsewhere.’

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.