Succession Readiness: Preparing for a Successful Transition

Succession should always be on the agenda, particularly at board level. Business continuity is critical to any business and one needs to know what are the practical actions that need to be taken if/when a founder or key person is no longer there. Of course the ideal scenario is that there is an orderly transition of leadership from one person to the next but often factors outside the control of the business / family dictate timing so being ready and having plans in place for those events is critical.

The key is having a clear plan that is transparent and properly communicated to relevant stakeholders. In my view there is no disadvantage to having this done early as plans can change and be adapted to needs of the business / family. Where issues arise is when there is no plan and the business / family is reacting to events or circumstances without having fully thought through the consequences. In those circumstances a rushed approach to succession can lead to issues for a business / family and in some cases can be fatal for the business.

INEDs can play a key role in the initial phase of succession in a number of ways (i) perhaps introducing or nudging a founder/leader/CEO to think about it and encouraging the board to keep succession on the agenda (ii) in family run businesses they can sometimes act as a key person in the initial discussions in particular where ideas and plans are not fully formed and allow some breathing space for people to absorb ideas, help to contextualise certain positions or situations, and bring an objective opinion to the discussions. At the latter stages in succession they can play a pivotal role in the transition of leadership. The question of when is a difficult one to answer definitively as all businesses are different and have different needs at different times. In addition, what each INED brings to the table will be different. I would say that where a business needs to look to is their own strategy and then to identify where they have gaps in delivering that strategy and usually (but not always) this would help direct whether and what type of INED is required.

This can be quite a difficult thing for a founder led business where all of the key decisions rest with one individual. The transition to a formal board generally introduces more structure to the leadership of a business and can provide stability and focus for a business and offer credibility to outside stakeholders such as investors, funders, key customers, new markets etc. Usually, at a point where a business is looking to scale in size and / or to take on significant investment a properly functioning board structure becomes invaluable to a business.

Typically in such scenarios a family would look to either sell the entirety of the business or look internally to key management to either have them buy out the business or buy in to the business and transition ownership over time. If a sale of the business is not a realistic prospect then an orderly wind down of the business is the next logical step to consider but usually gives the lowest return for a family.

This needs to be viewed from a number of perspectives (i) the transactional perspective (legal, tax and financial) which will usually be governed by the shareholders agreement and (ii) the business perspective which depends on the relationship between the founders i.e. husband and wife, siblings, unconnected third parties, the expectations around retention of ownership, legacy positions within the company i.e. is someone stepping into their shoes, and the nature of the business i.e. how dependent is the business on them and where is the business in its strategic cycle. The key is to address these issues early and in an open, honest and transparent manner and to clearly communicate the plan to the relevant stakeholders.

The roles need to be clearly defined a CEO is a very different function legally and operationally from a shareholder and the obligations and entitlements are very different. There needs to be: (i) a clear cut off point between "new" and "old", (ii) clear communication from both individuals on the change, (iii) clarity within the organisation with the board and the executive team fully supporting the position, (iv) adequate time to allow new CEO to adapt and settle into their role.

It is likely that the executive team will be directly involved in developing and executing any succession plan or sale and the communication around this would typically be more open, transparent and detailed. With regard to employees this would typically not be communicated until there is a definite plan with an implementation / execution date and often not told until very close to or even very shortly after that date. Other stakeholders are dealt with according to priority, for example funders and investors might need to be informed at a much earlier stage in the process as they may have a view or need to give formal approval/consent to any proposed plan, whereas other stakeholders such as suppliers/customers may only need to be informed at or close to the event itself.

This can be different for every organisation and for every leader but typically the change management challenges that arise at leadership level post change is (i) misalignment of leadership / board, a lack of focus on the original plan or reversion back to norms or what is familiar, (ii) expectation gap and tensions around change "its not broke why fix it?" attitude, (iii) credibility gap particularly prevalent in inter-generational succession, (iv) cultural and behavioural challenges from trying to change too much too quickly.

This should be a key part of the succession plan for any founder. It can be a real challenge particularly where a founder's identity is intrinsically linked to the business itself and disentangling this association can be a difficult process for both founder and the business. Where both founder and business are intrinsically linked they the process of succession should start much earlier. Founders also need to experience life without the business to figure out what their preferred retirement plan looks like. Many having devoted most of their working life to a business would prefer to continue working but at a slower pace typically as a consultant or mentor to others while others prefer a defined cut off from business and prefer to on something completely different. There is no right or wrong answer and the key is to have a well thought through plan