3 Tips For Succession Planning
Estate plans and trusts preserve assets accumulated over a lifetime and distribute them to beneficiaries, but what happens to a business when the owner or key executive departs to another company, becomes ill, or passes away? Succession plans create the selection process for the future architecture of an organization by appointing certain individuals to take over positions in the event an executive leaves their role. Succession plans are to businesses as prenuptial agreements are to marriages.
- Selecting an internal employee or appointing someone from outside the company? Appointing a successor can be done several ways. Authority can be given to a single individual, business advisors or selection committees can suggest candidates, or a board of directors may be consulted. There are benefits to hiring someone in-house: They are familiar with the corporate culture, company growth, and already have established contacts in the field. Some companies prefer external candidates, ones that provide a new perspective to keep the company progressive. The answer? Create a clear assessment list of asset requirements, competencies, and skills, and then ensure the successor meets these objectives.
- Open communication to internal candidates. If news of external successor recruitment reaches loyal internal figures who have interest in being a successor, even if the right candidate was found externally, this creates problems internally and runs the risk of losing critical business members who will seek a company that recognizes their performance. Buy-sell agreements are crucial for privately-held companies. Buy-sell agreementsgive owners the first chance to purchase interest in the company if another owner departs or passes away.
- Executive development. Without a clear succession plan, the loss of a crucial decision-maker could cost a company. Business interruption and slow leadership transition affects a company’s finances and morale. Part of an effective succession plan includes building leadership in multiple executive roles so that the successor joins a team of leaders who are equally suited for their roles. The grooming process can simplify the recruiting stage and allow for a smoother transition.