Succession planning at first generation: is there a better route to take?
Succession planning is a sensitive topic around companies in many geographies, especially for first-generation businesses. No wonder most of them fail to make it to the second one. For those company founders that are realizing the process of planning their own succession is a must-do, the question “what route should I take” is still far from one single answer.
One may say that the process varies with the type of company – listed or not, but at the root of the decision on what route to take among available options, is still the owner, with his or her fears, emotions, inner struggles, and control needs to satisfy or ability to let go.
In family businesses, where succession is a cornerstone process, highly linked with company perpetuity, the decision is far more complicated as long-term family well-being has to be included among the arguments.
So, what options do I have?
The success of the succession planning process depends on finding the proper timing, the suitable successor, and how the overall succession is managed, regardless of the type of business or the degree of founder-centricity. At the first glance, no particular option is better, whether professional advice is sought - headhunters or trusted advisors, a board of directors-led process is pursued or a family-council-driven call brings the successor.
Looking closely at these options, it becomes clear that successor profiling is crucial to the process, with a new question arising – is there somebody more suitable to run the profiling? The option of trusted advisors – in the cases where they have gained enough trust from the founder, is highly dependent on how much the founder reveals in the successor profile build-up and it turns successful upon the agency conflict being well-managed.
The same goes for headhunters – their achievement is dependent on the successor profile they receive from the employer. Along with its sourcing role, which includes a key person, the CEO, the board is the only actor in the position of aligning the successor profile with the company strategy. With its nomination committees, usually dominated by independent non-executive directors, the boards do guarantee the needed professionalism and expertise during the successor profiling.
Why should Boards be chosen to profile the successor?
This article also pledges the importance of the strategy at the Board level. It is of paramount importance that Boards do ensure that the company has the right strategy – it is after all one of the Board’s main roles – and that strategy is properly formulated along with the shareholder’s vision. When the Board passes through a rigorous strategy formulation or review, profiling the CEO becomes part of the process as the Board has to make sure the CEO has the skills, knowledge, experience, and engagement to execute that strategy.
So, when CEO succession arises, a Board that experienced a strategy exercise, talks about strategy at every board meeting – within the Boards of Romanian companies I have been part of in the last 10 years, I have observed that strategy is not a key topic or is missing at all – is in an ideal position to lay out the ideal candidate's profile. This profile is to be passed on to the chosen market screening channel – be that specialized headhunting agencies, trusted advisors, or even the founder. The decision process, be that at the Board or the founder level, is not the aim of this paper.
Succession in first-generation companies will be always difficult, but eventually, a successor has to be identified and installed, at the latest, initiated by the founder’s retirement due to age. The above argumentation suggests that the use of Boards is a more suitable option when preparing for the process.
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