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.