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Ten Things a CEO Should Remember About Succession Planning - Jul 16, 2010

Posted by: Frank Mancieri in Articles

Ten Things a CEO Should Remember About Succession Planning

by Kevin Kennedy

You can read several books or my white paper about “succession.” The purpose of this article simply is to differentiate “exit planning” and “succession” and outline the main points for a CEO to think about with succession planning.

In the simplest terms:

Exit Plan focuses on monetizing the trapped illiquid wealth in a private business.
Succession Plan focuses on a company successfully performing without its present owner/CEO.

An exit plan is a customized written plan that monetizes a business, meets the owner’s personal and financial goals, protects his or her wealth, and moves the owner into his or her next stage of life.

A succession plan provides a customized written plan that focuses on the human side of a business. Succession replaces the owner by moving the chosen performers to a professional level of management and into leadership. This requires time, training and stretching the team.

A succession plan may take several months to write and several years to execute. Depending on the readiness of a company’s management and the type of exit and current payout, a succession plan may last from three to 10 years. On the other hand, if the business is systematized and has clean financials and mature management is in place, the company could be “sale ready” in less than a year.

Ten Things a CEO Should Remember About Succession Planning:

1. The Owner’s Mindset:

The succession process does not begin until the CEO can begin to see him/herself outside the business, has a flexible date and a written plan. This stewardship will lay the groundwork for a successful transfer, the CEO’s legacy and the company’s future. Francis Hesselbein said: “Successful transition is the last act of a great leader.”

2. Complete Your Exit Plan—Update Legal Agreements:

A large part of the exit plan is income replacement for the owner. The owner’s exit plan should be a process so the owner can see him/herself as financially independent or the owner will never be able to separate from the business. Legal agreements should be updated to protect the business and the owner’s estate during this process.

3. Establish a Clear Direction and Focus:

The beginning of the succession process is a time to revisit the strategic plan, vision and mission. This process will be an exercise for the management team to establish their roles, work as a team and have a stake in the plan for the company’s future. It will be the management team’s responsibility to engage the company in this plan, communicate the plan and be held responsible for the plan’s implementation.

4. The Odds are Against Your Success:

A Family Firm Institute study reveals how difficult it is for small businesses to succeed over generations and business cycles.

· Seventy percent of companies fail to transfer into the second generation.

· Ninety percent of companies fail to transfer into the third generation.

The CEO cannot take this lightly. If you fail to plan, you plan to fail.

5. Develop Management Succession:

Management succession is more that the replacement of talent; it is the development of talent. This is a time for the new team to re-examine and improve performance of the company’s systems in a process of continuous improvement for the company’s profitability. The new management team should lead this process and education effort for the entire company.

6. Develop Leadership Succession:

Traditionally, you have strong managers who drive the company and meet deadlines and corporate goals. They must now rise to a higher level of leadership, set a corporate direction and build consensus. How do you change their behavior, build self-awareness and still maintain their spirit?

This change is accomplished through the light of self-awareness, acceptance of the truth, peer evaluation, experience and personal coaching. There are many processes and proven exercise to move them to the next level.

7. Understand Emotional Intelligence:

Most of us recognize IQ (Intelligence Quotient) from an educational system that weights this measurement. Now researchers use EQ (Emotional Quotient) or Emotional Intelligence as a measurement, and studies have found it is the key ingredient for leaders and millionaires.

The book Emotional Intelligence considers non-cognitive skills more important than IQ in the workplace. The author, Mr. Daniel Goleman, states that emotional intelligence is reflected in behavior from self-awareness, [how one?] uses gut feeling, self-control of emotions, empathy, and the ability to inspire and influence others.

8. Time is Your Best Friend With Education:

Succession and behavioral change take time, and the sooner you start training, the better your results will be. There are three parts to this training: education, coaching and stretching. You will spend about 30 percent of your time with education and coaching. The key is to leave 70 percent of your time for the stretching process. This is where managers are field-tested, apply their learning, make mistakes, adapt and mature.

9. Coaching the New CEO:

Every CEO must realize his or her role with the new successor is to make sure the next CEO is prepared to lead the company. Meet and decide collectively the process, time line and curriculum. Remember, this process is all about the new CEO, not you. Your role is to teach, coach and insure the company’s future. The new CEO’s management and leadership style likely will differ in some way from your style. Let the new CEO find his or her own path unless you see a disaster in the making.

10. The Lame Duck and Letting Go:

For each CEO, the succession process is different but the same. You will feel like a lame duck, it will be more emotional that you thought it would be and you must focus on life outside the business.

Eventually your phone will stop ringing, managers will bypass you and move directly to the new CEO, and you will be out of the loop. The good news is the process is working as it was designed to and you have succeeded where most CEOs fail. Congratulations, and welcome to the lame duck club.

For additional free educational information, go to Kevin's website, www.beaconexitplanning.com, for my 24-page succession white paper and newsletter archive.

Kevin Kennedy is the President of Beacon Exit, LLC. The content of this article is based on his personal experience successfully exiting his 63-year-old roofing company, the transfer to the company’s third succession team and his

training. The information is not intended to be legal, accounting, insurance or tax advice. Please contact your licensed business advisers for specific advice. Beacon is a process consultant that provides written plans and support programs to private business owners for succession and exiting their businesses. For more information, visit www.beaconexitplanning.com