By Penny de Valk, Associate Director, Equiteq
One thing you need to assure future owners of when preparing for an exit is leadership capability and stability, as well as the continued positive effect of this on profitability and growth. Ownership succession generally involves management succession and because buyers buy people and great leadership, it is natural for them to want to assess the quality of bench strength, as well as the planning that has gone into ensuring the right people are in the right roles. Your management succession plans throughout the company are an aspect of good governance that you can expect to have evaluated in due diligence. And CEO succession in particular will be critical. It is a key responsibility of the Board and is central to good governance.
Why the lack of planning?
So why do so many companies not prepare well on this front? Often succession planning is mistakenly just not seen as a priority against the immediate operational requirements of getting the company to grow and become profitable.
Sometimes this lack of focus relates to the size of the business. Even in some mid-size organizations, without a big HR function, there are few resources to manage succession compared to the formal talent programs enjoyed by larger organizations. Yet being a smaller organization makes it even more important, as not only is the company very exposed to key talent leaving, but those firms can also have a shallow pool of talent to draw from and are unlikely to have the rotational assignment opportunities that allow people to build their skills and experience.
Sometimes firms feel that planning around succession can be distracting for the individuals and the company and create a political tone in senior management that isn’t helpful.
Our experience is that the clearer the company is about what it needs and how it will assess and develop that capability, the less political it is and the more successful the outcome. So being a mid-size firm shouldn’t stop you being methodical, deliberate and thoughtful in your approach to succession.
One of the challenges with all succession is that we generally think we know what good looks like – and that is us. And why not? If our skills are what made the company successful in the past, why not replicate that to ensure success of the firm in the future? The problem with that assumption is that different leadership is usually required at different stages of a company’s evolution. As a company grows, the maturing firm requires different leadership capability – which is also why consulting firms will often need to appoint a team of c-suite executives, rather than rely on their founders’ knowledge, in order to reach their full potential. Finding people with an entrepreneurial, growth mindset and a commitment to the founders’ values and culture – and who are also able to manage a larger, more complex organization – isn’t easy. The reality is it does take a few years to plan and execute well, which is why the earlier it is done, the more it is integrated into the exit.
Steps to succession success
Overcoming the difficulties of succession planning involves being clear about its purpose, which is business continuity and business success. This will allow you to identify the skills and competencies required, which you should do simply but thoroughly. This process should also account for the fact that as the business transitions, the management and leadership skills required will change.
It’s also important to do more than an external search and consider the talent that already exists within the organization. While few people are the finished article, you should be able to identify the capabilities that are critical to have well developed already and the areas where there simply needs to be potential that can be developed. You should be prepared to develop and mentor these people and create a menu of development and stretch assignment opportunities. Also, remember this shouldn’t be a one-way process – ask people what their ambitions are, involve them in the process.
It’s also good practice to get an independent view and use assessment tools to assess both capability and potential. This can then be used to build a development plan for the individual to actively manage the transition and to accelerate their stepping into their new role competently and with confidence.
Succession planning when done well is a huge asset in a company. It is a key component of a future buyer’s view of value and risk. It does take time and consideration but does not need to be overly complex or distracting. Getting it right is key to realizing the true value of your company.
If you would like know how you can make a success of succession, join our webinar here.
If you are preparing to sell your consulting firm and would like to discuss your plans, please get in touch.
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