Blair West is regularly involved with investors and founders during the succession planning phase of their business’s growth.

Chris Beevers, Principal Consultant within our Executive Search team, sets out a six-step guide to smooth planning for succession.

 

The Concept

 

 

Succession planning is often seen as a controversial or adversarial business term. Perhaps this is due to broader media representation in high-profile global companies and in popular culture.

HBO’s Emmy-winning, critically acclaimed juggernaut, ‘Succession’ is currently in the home strait of its fourth and final season.

Since 2018, the series has given audiences a sharp insight into the existential angst, politics and division implicit within the succession planning process of a fictional media conglomerate, Waystar Royco.

However, there is far more to succession planning than media reporting and zeitgeist culture would have us believe.

 

 

What is Succession Planning?

 

Almost every small to medium sized owner-managed business will need to go through leadership changes as and when the company moves into its next phase of development.

The question of who will take over the overall direction and strategy of the business once the original owner is no longer best placed to manage its growth is intrinsic to succession planning.

The CIPD’s useful factsheet on succession planning sets out a clear definition of the process as:

‘identifying and developing potential future leaders and senior managers, as well as individuals, to fill business-critical roles. The aim is to be able to fill key roles effectively if a current post holder leaves the organisation.’

So, in essence, the concept focuses on growth and development, transitioning a business from its current state of operation to its future goals.

 

 

The Aim

 

Whatever its reputation, succession planning is an important consideration for owner-managed businesses preparing to raise investment and enter a new phase of growth.

A clear business strategy is fundamental to developing future leaders and retaining internal talent in key positions. And this needs to be a lot more than simply crossing fingers and hoping for the best.

 

How can this strategy be established?

 

For an investment process to progress, potential investors will want assurances that the company has a strong leadership team to guide it through succession planning and into the next phase of its future.

Series such as HBO’s ‘Succession’ certainly show us (entertainingly) how not to do it, but the challenges for non-fiction founders and investors in establishing a smooth succession path are real.

 

 

The Challenge

 

Unfortunately, succession planning can be a challenging process.

For a business owner, it is natural to want a guarantee that the company will continue to thrive after they are no longer involved in its day-to-day operations.

For many founders, the business has essentially been their bairn* and letting go of the reins can be emotionally complex and technically tricky.

 

What are the risks?

 

Poor succession planning can result in loss of confidence within the market, an exodus of internal talent, tangible dips in employee morale and glaring gaps in institutional knowledge. This can lead to critical continuity challenges for the business.

 

How can these risks be managed?

 

In order to prepare for a future where the founder is no longer the leader, there are several key steps that a business in this situation should take. Guiding succession towards a positive outcome is certainly possible and plannable, with much less drama than the Roy family.

 

 

Start early 

 

Firstly, it is important to start the succession planning process early.

 

How early?

 

A private equity investment process can typically take a year from concept to closing the deal and a business is much more likely to gain investment if key questions concerning succession have already been considered. Planning ahead is key.

Starting early will give the business time to identify and recruit the right person to take over the company and develop a long-term plan for its future growth.

It will also provide the founder time to transition out of the business and ensure that the company is in good hands before moving on to new ventures.

 

 

Get people involved 

 

Secondly, it is essential to keep key stakeholders actively involved in the succession planning process.

 

Which people should be prioritised?

 

This will typically include the business’s board of directors, key employees, and potential investors.

By prioritising that these stakeholders are in the loop, the business can gain valuable insights and perspectives on the best way to approach succession planning and can ensure that the transition goes as smoothly as possible.

In order to maintain workforce confidence and retention of your talent pool, it is crucial to ensure than communication more generally within the workforce is handled effectively.

Insisting on discretion and confidentially amongst your inner circle will mean that information is released in a timely and controlled manner therefore avoiding a rumour-mill and the potential for valued employees to jump ship.

 

 

Build a clear profile 

 

Thirdly, you’ll want to profile the skills and experience a potential successor will need to succeed in the role.

 

What should be considered for inclusion?

 

This will include both specific technical knowledge and understanding in relation to the sector as well as softer skills such as leadership and communication abilities to complement the requirements of the business and its current team.

Weighing up the advantages of an internal candidate vs external talent is an important consideration in order to ensure consistency as well as dynamism.

Once these skills have been identified, the business can begin identifying potential candidates and evaluating their suitability for the role.

This is where working alongside an experienced partner such as Blair West can be invaluable in making introductions and supporting the board team with the challenges of an effective search and recruitment process.

 

Close the gaps 

 

To further ensure a robust succession plan, you will certainly want a thorough training and development plan for the successor.

 

What are the key metrics for success?

 

For an external successor, it will be essential to bring them swiftly up to speed on institutional knowledge, workforce planning and strategic priorities.

This will help to ensure that they have the knowledge and skills necessary to take over the business and lead it into the future.

If the business appoints an internal successor, the training and development plan should still include both on-the-job training and external development opportunities, such as mentoring, coaching, and professional development courses.

Stepping up from an existing role to a leadership position intrinsically comes with its own set of challenges, not least the immediate need to recruit a internal replacement.

 

 

Keep Communicating 

 

Fifth, it is important to communicate openly and transparently with potential investors about the succession planning process. Private equity firms will want to know that the business has a robust plan for the future and that the transition will be managed effectively.

 

How much should be communicated?

 

By providing investors with detailed and transparent information about the succession planning process, the business can demonstrate its commitment to long-term growth and success.

In addition, it is crucial to consider the whole organizational chart of the business in order to communicate a clear overall message regarding the next phase. If insufficient or conflicting clarity is provided for line managers, this can lead to conflict, distrust or poor performance. Effective management of communication can boost wider employee morale and ensure business continuity by developing future leaders throughout the succession process and beyond.

 

 

Perfect the plan 

 

Finally, have a clear and detailed plan for the actual transition.

 

What about if things don’t go smoothly?

This should include a timeline for personnel changes, as well as specific steps that will be taken to ensure that the business continues to run effectively during the transition period.

It is also considered best practice to create a contingency plan to offset any challenges which may arise, whether internally or externally. Forewarned is forearmed, after all.

This succession planning strategy should be shared with all stakeholders in key positions , regularly reviewed and updated to ensure it remains relevant and effective.

 

 

The Outcome

 

Undeniably, it can be initially challenging to visualise a new era for any business without the founder at the helm.

For HBO audiences, Waystar Royco without Logan Roy seemed an unthinkable prospect only a few months ago.

However, when succession planning is robust, with transparent intent and rigorous implementation, it can be a much less controversial process than Kendall, Roman and Shiv Roy would have you believe.

By managing the succession planning process carefully and involving key stakeholders, owner-managed businesses can ensure that the transition goes smoothly and that the company continues to thrive.

Effective succession planning will benefit the business and provide peace of mind for the founder, knowing that their hard work and dedication will continue to be carried forward by the next generation of leaders.

 

 

Blair West glossary

 

*a child. Deriving from Anglo Saxon and Viking lexis, but used widely within the North East.

 

At Blair West, we frequently work with both investors and founders in succession planning processes and have experience in guiding succession towards a successful outcome. Please get in touch with us for more information or if this blog has generated questions or feedback.