Is it too late for a succession plan?
Succession planning is a business strategy for the identification and development of new leaders and talents who can fill vacancies in the Family or Business as others resign, retire or move on. It forms a very critical aspect of ensuring the smooth transition of leadership and assets within a family or business.
Ideally, the best time to start planning for succession is now, when it is not yet needed. However, the reality is that many individuals only begin thinking about succession when they are older or facing imminent changes. While the optimal time may have passed, it is never too late to initiate a succession plan. Taking action now can yield significant benefits and ensure a more secure future for the business.
The risks of not having a succession plan:
Not having a succession plan in place can lead to several risks and consequences, such as; Naming a successor who lacks personal drive, commitment, skills, training or education to take up a role; potential disruptions to business processes, workflows, and protocols; Alienation or loss of potential successors; difficulty in obtaining long-term financing if lenders perceive inadequate business planning; negative emotional and cultural impact due to internal power struggles; mistakes in appointing a successor to fill an urgent gap; paying a high cost for poor succession planning; amongst others.
The only thing nearly as bad as not having a successor to take your place is having a poor succession plan thereby enlisting someone ill-fitted for the role as a successor, be it from lack of relevant background, wrong line of expertise, Lack of requisite training or preparation or inadequacy in handling all the responsibilities a CEO is expected to undertake. These risks if not mitigated can lead to a significant loss for a business and in extreme cases the collapse of such business hence the importance of having a good Succession Plan which is structured by a professional Advisor.
Embracing the present
Although hindsight may reveal missed opportunities, dwelling on the past can be counterproductive. Instead, it is essential to focus on the present and take action to implement a succession plan. Regardless of age or circumstances, the willingness to address succession demonstrates a commitment to the future well-being of the family or business.
There are several prominent figures who have successfully had a succession plan in place and effected same. A prominent example is the succession plan structured by Amazon former CEO Jeff Bezos who announced since 2014 that there was a succession plan in place and Andy Jassy was subsequently appointed as Amazon CEO on July 5, 2021 while Jeff Bezos took over the role of Executive Chairman. This succession plan has been in motion years before the execution thereby enabling a seamless leadership transition.
Virginia Rometty’s succession as CEO of IBM in 2012 is also a case of internal succession planning done well. Rometty’s advancement worked well because of the professional development systems that allowed her to succeed based on merit and become IBM’s first female CEO.
In 2008, spice and flavourings giant McCormick & Co. transitioned its CEO position from Robert Lawless to his successor Alan Wilson using a succession model that was praised for being thoughtful, comprehensive, and well-executed. Lawless made a point of establishing a transparent timeline of five years, planning his transition to a non-executive chairman of the board role.
The goal for every family or business should be to have a succession plan in place which includes, determining who will take over leadership, clarifying roles and responsibilities, and establishing a clear vision for the future. Defining these goals provides a roadmap for effective succession planning, regardless of the starting point.
Seeking professional guidance:
Succession planning can be a complicated and sensitive topic. There is a lot for business owners to consider when they are drawing up their plans for the future – financially, operationally and personally. Also, the nature of the succession plan is likely to vary depending on whether the owner’s designated successors are co-owners, family members, key employees or outside buyers.
For these reasons, many business owners request the support of their financial advisors when drawing up their succession plans. An advisor can help you to clarify your succession plan, considering both your financial circumstances and your long-term personal and professional objectives. They can also help you to achieve a smooth and tax-efficient transfer of your business to your designated successors.
Engaging the services of experienced professionals is invaluable when embarking on a succession planning journey. Expert advisors can provide guidance, facilitate difficult conversations, and ensure that the plan is legally sound and comprehensive. They bring expertise in areas such as tax planning, estate law, and business valuation, helping to navigate complexities and maximize the effectiveness of the succession plan.
A good succession plan is thorough, patient and starts as early as possible. While the ideal time to start succession planning is in advance, the next best time is always now. Regardless of age or circumstances, taking action to initiate a succession plan is essential for securing the future of a family or business. By embracing the present, setting clear objectives, seeking professional guidance, building a supportive team, and remaining adaptable, individuals can create a robust succession plan that provides peace of mind and ensures the continued success of their legacy. Remember, it is never too late to start planning for a brighter tomorrow.
Adejumo is a Family Wealth Advisor at the Meristem Family Office.
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