Accounting and Consulting
Identify future leaders now
How to develop a succession plan to fill key positions down the road
By Lisa Murton Beets
Smart Business Detroit | July 2008
Steven Y. Patler, JD, CPA
Managing director
The Prosperitas Group LLC
From a business operations standpoint, succession planning is crucial
for all sizes of companies, whether a one- or two-person organization or a multinational corporation.
“It’s been estimated that only half of public and private companies have a succession plan in place for key members of management,” says Steven Y. Patler, JD, CPA,
managing director with The Prosperitas
Group LLC in Bloomfield Hills. “The departure of key employees for expected or
unexpected reasons can remove knowledge, leadership and even an organizational icon. Consider the retirement of Bill
Gates from Microsoft. Careful planning is
essential to ensure business operations can
continue.”
Smart Business asked Patler how companies develop a succession plan that identifies future leaders.
What is the most important factor to consider prior to developing the plan?
The company’s future needs. While the
existing needs are important, focus on the
strategic direction of the organization. If a
person in a key position leaves, it may or
may not be ideal to replace him or her with
someone with the same skill sets. Taking
into account the company’s strategic direction is critical, as is identifying the desired
qualities of future leaders long before there
is an actual need.
For the succession plan to make sense, a
broad base of representatives should be
involved; for example, members of the
board, the CEO, vice presidents, general
counsel and human resources personnel.
There is no cookie-cutter formula for a succession plan. Each company has its own
strengths and weaknesses, which can be
more easily identified if myriad people are
involved with the process.
How can a company evaluate current personnel to identify successors?
In some companies, the most pressing
need is to identify a successor to lead the company. But for most companies, there
are several key people who are essential
for survival. So there may be many positions that need a plan. You need to study
and identify what positions and people are
most critical. You have to evaluate their
abilities in the context of the position.
After crucial people and positions are
identified, the next step is to determine
available sources of replacement. It is not
always existing personnel. You may need
to look externally. For example, say your
marketing director has been with the company for many years and handles all the
marketing functions, and no one else at
the company knows his or her job in as
great of depth. In that type of situation,
you have to consider how easy or difficult
it would be to identify a replacement from
outside.
When considering replacements, it’s
important that potential candidates are a
good fit for the culture of the organization,
or be ready for a long process to change
that culture. Some people fit better in certain types of companies, and others fit well
in certain roles within a company. Some don’t even want to be managers. There are
sophisticated tools available to determine
what types of positions people are best
suited for or to help employees identify
their strengths and weaknesses to pinpoint areas they need to improve upon in
order to move up successfully to different
positions.
How can a company ‘develop’ its potential
successors?
Once you identify candidates, there
needs to be mentoring and education. Job
rotation is helpful, as well, to see how all
the positions relate to each other. Equally
important is to have an evaluation process
to see how the person is progressing and
performing. Is he or she, indeed, the good
candidate you thought he or she would be?
Are there any special considerations?
In some situations, succession planning
can get political. For example, look at the
large brokerage firms that had to hire new
external CEOs because of poor past performance. Shareholders demanded new
talent, even if there were good, developed
candidates on staff. So, sometimes, there
are external forces beyond your control.
Another consideration is that you really
need two types of succession plans: the
long-term development plan, plus a contingency plan. Positions don’t just open due to
planned retirement. Things happen. Or the
CEO or other key personnel might change
companies, leaving at the prime of their
careers. Contingency plans are essential to
maintain operations even in the sudden
absence of a CEO or other key employee.
This brings us to a final point: Both internal and external factors can render a succession plan null and void. You can’t just
have a plan; top management and the
board must be committed to it and
resolved to revisiting it at least annually
and updating it on a continual basis.
STEVEN Y. PATLER, JD, CPA, is a managing director of The Prosperitas Group LLC, Bloomfield Hills. Reach him at (877) 540-5777
or cs@cendsel.com. For more information, go to www.prosperitasgroup.com.
