Margie McGovern

The HR Mediator and Family Business Advocate

Why It’s Important to Utilize Management Succession Planning

 

In my last Insight, I talked about the advantages of utilizing management succession planning. 

If your company is interested in setting up a management succession plan, here are some steps you can take: 

1. Be self-aware—Avoid “Denial” when evaluating what’s good or not so good about your company - or what talent or financial strengths it has or doesn’t have. Succession planning requires a clear-eyed view of your company’s current status and the status of the competitive landscape, your market and/or external environment.
   
   Once you have completed your succession plan, you will be better able to plan for expansion. Alternatively, you may reach a point where growing your company is not as attractive as getting out of this business and into another endeavor or retiring. In that event, succession planning will help you in preparing financial plans that can handle the need for a liquidity event sometime in the future. 
   
   
   
2. Conduct human resource planning—If it’s a family business, you will most often be evaluating internal candidates. However, it is especially important for the family business to assess talent honestly and avoid any aspect of denial about what talents can or cannot be found within.
   
   If yours is a public company, you need to look at your stakeholders within the company at each level. You need to look at the ability of different people and groups to work together, as well as look at the talent that’s present.
   
   In a large company, you need to go out into the marketplace and identify how you’re going to recruit, retain and develop the people you need.
   
   And you can’t just develop one person for each management position. It is important to develop a field of people so that there are options available when it’s time to choose who will succeed your current management team.
   
   Once the candidates have been identified, their preparation must go well beyond training to provide broad experience and exposure to complement and enhance each individual’s potential.
   
   
3. Utilize market planning—You need to look at your market and at your competitors to see how the market may evolve over the next 20 years. Then you need to plan for contingencies.
   
   
4. Make use of tax planning—This is important for the company and for top individuals, and should also include contingency plans. For family businesses, it is critical that all succession options be evaluated in the light of potential tax consequences for the family. Tax experts who specialize in family business can help families maximize tax and business opportunities in ways that allow them to better preserve or transfer the wealth they have built in the company. 
5. Plan for the transition of responsibility and control—How will this happen? How will it be maintained? What will the company and the environment be like afterwards? 

If there are family members involved in the business, then management succession planning is even more important. 

I’ve assisted a number of family businesses when they’re right on the “horns” of a dilemma. Often, there is a need to save money or cut costs. Sometimes, relationship or individual issues of a family member may call for a realignment. 

If there are venture capitalists (VC) looking at the business, the company may need to make various changes in order to accommodate a VC. 

Rarely do family owned companies come to me and say, “One of my key objectives for the next year is Succession Planning!” And that really concerns me because most people don’t seem to realize what an opportunity they are missing.  Many owners of family businesses reach a point in their life (and the life of the company) when they want to retire or reduce hours. To do this, they may need to withdraw all or part of their investment in the business. However, successful “liquidity events” typically follow years of careful preparation.  

At the heart of this preparation is management succession planning which can’t be done the month before—or even the year before—the management team wants to leave or retire. It has to be done proactively and well in advance. 

When you don’t have a succession plan in place, your business is not protected if something happens—someone leaves, retires or God forbid, dies—especially if it happens unexpectedly. 

That’s why it’s important to know your options and have a plan in place.

The information contained in this document is for general, informational purposes only and is not intended to be legal advice. This information is not a substitute for the guidance of a professional and should not be relied upon in reference to any specific situation without first seeking the advice of a qualified HR professional and/or legal counsel regarding applicable federal, state or local laws. HRTools, Insperity and their respective employees make no warranties, express or implied, and make no judgments regarding the accuracy of this content and/or its applicability to a specific situation. A reference or link to another website is not an endorsement of that site or service.