Why should management succession be high on the list of strategic priorities?
Because owners of financial services firms can maximize the value of their businesses by making management succession part of their strategic plans.
There are a number of actions that businesses should take to address their management succession needs.
Let's look at five that are essential to management succession success.
Develop a plan. Any important business undertaking should be guided by a plan, and management succession shouldn't be an exception to this rule. The human resources component of a strategic plan should address how management succession fits into the overall approach to attracting, developing and retaining key employees.
Specifically, the management succession plan should address items such as:
• Why management succession is important to the future of the company.
• Who is included in the management succession program.
• What steps make up the management succession process.
• When management succession will take place.
Start early. In general, those who waited until thinking about retirement to address management succession waited too long. Management succession is a long-term process by which potential future leaders are developed at multiple levels and across multiple departments and functions within the organization. If a firm is one of the many that hasn't introduced a succession planning program, it should jump-start the process by evaluating the senior management team and at least one subordinate level of managers, assessing training and development activities, and understanding the recruiting and retention track record. The results of these assessments will provide much of the foundational information needed to design a management succession program that is tailored to the business.
Create options. It is risky to have just one succession option. Strive to develop multiple successor candidates for each key position. Middle-market companies can learn a lot from the high-potential programs used by larger companies. Such programs involve identifying leader candidates and putting them through rotating training programs to enhance their expertise and experience in each major facet of the business (e.g., finance, information technology, customer service, operations, sales and marketing, and engineering/product development). Although not everyone may have the luxury of being able to institute a comprehensive rotational program, cross-training programs derive many of the same benefits.
Take a long view. Management succession and ownership transition often are confused when the leader of a company is also the owner. For family-owned businesses expecting to transfer ownership from one generation to the next, it is especially important to take a long view by distinguishing leadership from ownership. Sometimes the best course of action for the continued success of the business means that passing the ownership baton shouldn't be synonymous with passing the leadership baton. At the time of ownership transition, the next generation may not be ready to take on business leadership. In that situation, the owner should identify the best candidate (internal or external) to run the business and let the management succession program prepare the next generation. Taking this type of long view will best serve the interests of the business, employees and family in the long run.
Communicate intent. There is nothing worse than uncertainty to affect employee morale negatively. When business leaders approach retirement age, especially when they are owners, employees start to wonder about the future of the company.
As is human nature, employees typically think about the full range of possibilities, but they tend to dwell on the worst-case scenarios. As a result, it is important to transparently communicate to an organization the plan for addressing its management succession needs.
In summary, those who have a developed management succession plan, instituted it well in advance of a succession event, created multiple succession options for core positions, taken a long view toward business leadership and communicated the plans to the employees are well on their way to successful management succession and well ahead of most businesses.
Mark Steranka is director of planning and policy for Moss Adams Advisory Services.
