How a Succession Plan Can Lead You to the Promised Land
Have you ever noticed how in business, as in life, everything can become routine? The day-in and day-out pursuit of growth and profitability can make you feel like you’re a Moses, wandering in the wilderness, looking for the Promised Land.
Ways Out of the Wilderness
But in actuality, there are things to look forward to and work toward, with end results that will be rewarding as well as pro table. So let’s explore three types of succession planning, and stop this pointless wandering.
Employee succession often begins with the formation of a key management team in which a business can operate and function with or without the owner or founder.
Employee succession usually can occur 1) when there is an internally identified successor promoted to CEO or 2) when a successor is an outside replacement of the CEO.
In a study entitled “Will Succession Planning Increase Shareholder Wealth? Evidence from Investor Reactions to Relay CEO Successions” published in the February 2003 edition of the Strategic Management Journal, Wei Shen and Albert Cannella Jr. recommended that the board closely monitor the succession planning process.
Customer -driven Succession
Customer-driven succession is based on the sustainability of product innovation, relationships, and image built around the founder or owner’s vision.
When Steve Jobs passed away, it took Apple’s new CEO, Tim Cook, a few years to restore the confidence of the board as well as consumers. Leadership, by keeping a focus on innovation, relationships, and image, can ensure a smooth transition with and for a new leader.
Investor succession is basically any internal or external transfer owner’s investment, to put it simply, changes hands with another investor.
There are several equity value drivers, or strategies, that a founder, owner, or investor will look for prior, during, and post-succession. Most used strategy is to increase operating efficiency or increase operating income (EBIT). Another method is to increase sales. In “Firm Buyouts, Private Equity, and Strategic Change,” an article in the spring 2009 Journal of Private Equity, Louise Scholes and her co- authors says it’s a good idea to install a non-executive director on the board to monitor the succession plan implementation early, as well as have a founder/owner stay on as a consultant for a period of time.