Succession planning can be tricky. You may have key employees who are truly vital to the success of your company who have been with you from day one. If you leap frog them and hand the business over to your son or daughter, that could negatively impact the future of the company.
“You need to identify all key employees, including non-family members, and consider how they are included in a transition or how they’ll otherwise be rewarded for their service,” says Joseph Bilinovich, senior vice president and market team leader at Westfield Bank.
Smart Business spoke with Bilinovich about the keys to effective succession planning.
How does the succession of a family member into a leadership role affect the other employees in the business?
Depending on the situation, it can create resentment and talent drain. It’s vital to get buy-in from all key employees and earn their respect. If you get that next generation management in early, from ground up, it goes a long way toward that end.
It’s inadvisable for the successor to parachute in to the business right before you leave. They don’t have any experience, so if they try to change things they’ll run into serious resistance.
The earlier the next generation of leaders can be groomed the better. Get them involved with all aspects of the business. Let them fail — not to the detriment of the company, but to allow them to experience those situations so they can work through the solutions themselves.
What can get in the way of having a smooth transition from one generation to the next?
Sometimes the head of the company has a hard time letting go and may not accept that their successor has better ideas for the direction of the company. If you retire, then retire. There are, however, certain circumstances in which it’s important for the retired individual to stay involved in the company, for instance if he or she has strong sales relationships or key contacts that make his or her presence important. That must be balanced with the need for the company to move forward under new leadership.
How can the current leader of a company be sure his or her business will be carried on the way he or she would want after handing over the reins to the next generation?
A company’s culture plays into the level of morale, its success and productivity. There are good cultures and there are bad cultures. If the company’s culture isn’t healthy, then it’s time for a change, and new leadership can often bring that.
Assuming, however, that the company has a strong culture, the important thing is to make sure the next generation buys into the existing values.
What are the more common faults in a succession plan and how can they be avoided?
The most common problem is waiting too long to start succession planning. If you want your company to succeed as it did when you were at its helm, it’s best to start the process of identifying the next generation of leadership as soon as possible.
A succession plan should be clear and concise to avoid any mistakes regarding how everything takes place and when. Plans, however, shouldn’t be too rigid or inflexible so that it can be adapted to address unexpected changes.
Who can help a company prepare a succession plan?
Business owners often turn to legal and financial consultants for advisement on a succession plan. Regardless of who is on your team, it’s important that they are independent and can assess the situation without preconceived notions or emotional favoritism. Friends or family members can sometimes let emotions skew their advice.
The biggest mistake it to wait. While the assumption is that a business owner is planning to pass the torch upon his or her retirement, that doesn’t account for an unexpected need to change leadership, say in the event of a sudden death.
Money can fracture a family. If it’s not established who will take over the business, the odds of the company succeeding are slim.
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