If you have never read the book Built to Last: Successful Habits of Visionary Companies written by Jim Collins and Jerry Porras, it is a must read for business owners. One of the primary themes of the book is businesses that are successful over a long period of time do a great job of succession planning. When one CEO is ready to retire, the next CEO has already been groomed to take his or her place. While a new CEO brings some different talents and perspectives to the table, the core culture of the business has already been ingrained. The new CEO understands what has made the company a success historically, has participated in that success, and is prepared to continue to move the company forward—ultimately enhancing the company’s value.
The book goes on to point out that companies that are less visionary and less strategic in planning for succession generally achieve lesser results over the long haul.
When you think about it, it only makes sense that companies that plan leadership transitions will likely do better than those that do not. It is logical that a company that has a successful momentum will likely keep that momentum if a leader who is familiar with and groomed within the company can rise and continue to enhance the culture that made the company successful. It seems more likely that someone who has been groomed, trained, tested, evaluated, and screened internally—presumably over many years—is more prepared to be successful within the company than an outsider hired through a recruiting process who really doesn’t know the company well.
Bringing someone in from the outside, no matter how talented they may be, can slow down the company’s momentum as management adjusts to a new leader and an unfamiliar style. It is certainly possible that a new CEO from the outside will ultimately be successful, but there is also risk that an outside hire could change the direction and culture and miss the whole reason the company has been successful in the first place.
Building a company that lasts takes vision, planning, and execution in every aspect of the business. Not the least of these is planning for the ultimate succession of leadership. Failing to plan for succession risks maximizing shareholder value in the long term.
Does your company have a succession plan? Share in the comments.