Leave your business in good hands!

Ignoring succession planning, especially in a family business, is highly irresponsible.

Managing for profit by Peter Hughes

We are all going to die of an incurable disease called ‘mortality’.

Put another way, loss of key people in a business is a certainty.

And while I can understand a healthy young person thinking that he or she will live forever, it never ceases to amaze me when aging business owners, directors and managers take no steps to prepare for the day when they will no longer be around.

It’s plainly irresponsible, especially as succession planning isn’t rocket
science.

It’s a well-documented practice, and many skilled consultants are available to provide help.

Are you one of those who have a blind spot about death, disablement, or even the departure of key employees to new pastures?

Let’s take a quick look at the principles involved.

As most people know, a business is driven from three distinct levels:

1. Ownership: the shareholders;
2. Directorship: the directors;
3. Management: the day-to-day managers.

Some individuals may operate on all three levels, and that’s fine, as long as they realise that their job at each level is different.

If a business is to prosper it needs people with competence at all of these levels.

When it comes to succession planning, you need to consider all levels!

Ownership: a question of interest and competence

Are the heirs of the key or main owner interested in the business? Will they wish to maintain it?

Are they competent enough to handle the responsibilities that will devolve on them when they inherit the business?

If the answer to any of these questions is no, then, whether you’re the owner, director or manager, you have a problem.

In this case, the best course of action might be to sell the business while the going is good (or facilitate the exit of those heirs with no interest), before you become incapable of providing the essential ownership role needed.

If the answer is yes, you need to ensure that the heirs are adequately prepared to take over the ownership role when you disappear from the scene.

Note that I am talking about ownership, not management; these are two very different roles that often get confused, to the great detriment of the business.

A carefully planned programme of induction and training over a number of years may be necessary to help the heirs understand these different roles and prepare themselves for each.

Directorship: a spread of expertise needed

Here we have the people who drive strategy and set policy.

No doubt some owners are involved at this level, and probably one or more of the managers, but invariably there’s the need for some ‘outsiders’, such as non-executive directors, who bring special skills and experience to the table.

Who are they? What is the ‘age profile’ of the directors?

In other words, is there an appropriate age spread that protects the business from possible loss of all expert knowledge and experience over a relatively short time?

Do you have anyone capable of stepping in to fill gaps should they arise?

Management: the company’s achilles heel

This is the critical level where the business is most vulnerable.

Imagine, for example, a situation where the CEO and CFO of the company are both killed in a car accident.

Could the business survive such a tragedy?

Could it continue delivering satisfactory results for shareholders and other stakeholders? No? Then you have some serious work to do.

As Confucius said: “If man take no thought about what is distant, he will find sorrow near at hand.”