This article originally appeared in the May 2018 issue of Smart Business Philadelphia.
Middle-market companies are more prepared than they might think for leadership succession, but many still have work to do to attract the best talent. Many companies have very compelling stories to tell. A successful succession strategy comes down to getting everyone on the same page to develop and execute a plan.
Middle-market companies, typically run by eight to 10 people, need a plan to attract or develop people who are in line for a leadership position and this critical plan requires the entire organization’s input.
What tends to stand in the way of a successful C-level succession plan?
Companies may choose to invest in other areas over the years instead of building the executive talent required for the company to excel. Manufacturers, for instance, may invest in inventory rather than upgrading their head of operations, or a sales organization might think having a controller is better than spending on a CFO.
Sometimes business gets in the way, and an unintended consequence of a business expansion is the sacrifice of a training or advancement program. Companies may be attacking challenges as they arise so they’re not thinking 10-20 years down the road.
In other cases, a company might challenge a department head to bring people along, but not provide any structure for that training. Or there’s a plan, but unintended departures derail the effort and put the company essentially back where it started.
What is essential for successful C-level succession planning?
Successful succession stems from a strong company culture, which itself is a product of the C-level team. They need to hire people who are better than they are and provide leadership training to prepare the next-in-line to step into the new role. That takes commitment at all levels of the business.
Compensation is also a major factor. It’s not only about having the right leaders, but also ensuring that they are properly incentivized. Companies that aren’t paying a competitive wage will lose their top talent, so take a close look at the comparable positions and salaries in the market to determine the right compensation levels.
Although salary is important, today people want more than just salary; they want a total compensation package. If a person can trace the company’s success to their desk, they will want to get a percentage of that as compensation. Properly incentivizing the right employees will benefit the company.
How often should a plan be reviewed? What might prompt a company to revise its plan?
It’s good to review the plan quarterly and examine it through the lens of the company’s strategic growth plan. As the business grows, it changes. And when those changes occur, review the succession plan in all areas — where did the company invest, what challenges came with that, are the right people in place to deal with that?
Meetings should involve the department heads with the idea of learning what’s happened. These don’t need to be two-hour meetings. They could be brief checkups to learn whether the departments are on track with their leadership and succession training.
Communication is important, too. Let people know a leadership transition plan is in place and what they need to do in order to move up.
What should companies know or consider as they put together a C-level succession plan?
Companies need someone to champion the cause. This person won’t assemble the whole plan — it’s a group effort — but there should be one person responsible and who can be held accountable for it. And that person needs to have support from ownership.
It’s good to have a strong advisory team help assemble a succession plan. Owners shouldn’t put together a plan alone. Talk with peers who have been through it, as well as bankers, lawyers, accountants and insurance professionals who can bring their experience and knowledge to bear on the succession plan.●
Contact us to learn more about this topic.
You may also like: