Does your company know who will take over if the CEO steps down? When a company is just beginning to see signs of growth and success, very few executives consider what might happen if someone on the senior team should leave. In established organizations, even as members of the executive team moves toward retirement, many companies still don’t have a formal plan in place for how to replace them. However, life can be very unpredictable, and every company needs a succession plan in case a key member of the team moves on, whether by attrition or retirement.
Formulating a succession plan is one of the most important roles of corporate boards, according to Forbes contributor Donald Delves. What’s most surprising about succession planning, however, is how few boards take the responsibility seriously: half of companies that bring in $500 million or more don’t have a proper succession plan. Ready to propose succession planning at your next board meeting? Here are 5 reasons you should.
- Succession planning identifies the most qualified leaders
Identifying potential leaders in your organization doesn’t just come down to the experience. Succession planning can help a board assess qualities beyond skills that contribute to great leadership, like:
- Emotional intelligence
- Commitment to the organization’s values
- Past performance
Coming up with a succession plan in advance allows the board to select the most qualified leaders within the company, providing opportunities for training and coaching if needed. Insecure managers will often balk at succession planning, but making it a key part of the corporate culture helps to ease these fears. Some boards even tie financial incentives to executives making progress in succession planning, but this can be a difficult strategy to maintain. Succession planning is for the greater good of the organization, and everyone needs to get on board.
- The company can avoid disproportionate salaries and hiring headaches
Executive salaries have been through the roof in recent years. Having no formal succession plan can make this worse, since executives coming from another company will expect a bigger compensation package to leave the security of their current position. Hiring internally has many advantages, but of the biggest is that companies can choose a candidate who knows the business well and won’t be slowed down by becoming aligned with the organization’s goals and values. There’s also no gap between the vacancy and the new leader who can get to work immediately.
- Helps to maintain brand identity
Innovation is key in business growth, but it can destabilize brand image. New leaders coming in will not have internalized the core values and identity of the organization, since this takes time to develop. Because of this, new leadership can inadvertently compromise the company’s brand identity, which can hurt the business and confuse customers. Promoting from within greatly reduces the chances for brand identity instability.
- Alleviates investor concerns
New leadership brings new concerns for investors. Succession planning signals to investors that the company is proactive and committed to the company’s ongoing success. It takes true collaboration to create a succession plan, and it signals to investors that the company is prepared to work together in any scenario.
- Allows the company to create a long-term map for the future
Considering who should take over can help boards plan strategy for more than just the team. The process can help identify vulnerabilities, set new goals, and create a roadmap for future growth and innovation. If training is needed to develop new members of the team, succession planning can start that conversation, and help facilitate a plan for filling knowledge gaps and making everyone on the team a stronger asset.
Professional Development and Collaboration
Succession planning may seem very straightforward at first glance: choose the next leaders of the organization. However, there’s much more to the process than just a few simple decisions, and the insights gained through succession planning can result in significant collaboration and professional development amongst executives. It’s a great way to break down competition that can emerge within a company and work toward what really matters: ensuring the company’s future success. The best way to do that? Be proactive. No matter what happens, have someone who’s ready to fill some very big shoes and step up to lead.