Succession Planning in Public and Private Companies
Part 2 of ETG’s Leadership Transition Series
Public and private companies have very different structures, but in both cases, succession planning is a vital priority. The longevity of any organization rests on the ability of today’s leadership to prepare for future changes.
In my experience with both organizational structures, there are different reasons why companies have or haven’t pursued succession plans. However, change is inevitable, and a lack of planning leads to a lack of control when it matters most.
Let’s put in perspective what it looks like for private and public businesses to plan for the future—and what is at risk if they don’t.
Challenges of Succession Planning in Private Companies
In privately-owned companies, company politics and underestimation of the transition process are key obstacles to smooth succession.
It’s not uncommon for owners to gloss over the details of handing over leadership of the business. Planning to sell the business, without a detailed agenda for how to do it, puts owners at risk for a big surprise when the time draws near. Even if there are no immediate plans to sell the business, the business takes on a lot of risk by neglecting to plan for an abrupt change in leadership.
In family-owned businesses, family politics may also put the brakes on timely succession planning. Different expectations within the family can cause friction when succession planning does come up. A desire to “keep the peace” may tempt these families to put off these conversations. Unfortunately, this sets the scene for a much worse scenario should the company abruptly need a new leadership structure.
Ultimately, failure to properly prepare for leadership transition will affect the value of the business.
How Private Companies Can Prepare for Leadership Transition
There are uncomfortable truths behind succession plans in the context of private businesses, so it makes sense why so few owners feel compelled to pursue them. As difficult as it may be, it’s crucial for private companies to look around the room and think rationally about what, and who, succession planning protects.
Once owners can adopt the right mindset, it’s important to keep that momentum going. Start by:
Evaluate and determine the best fits to advance through the leadership pipeline. Invest in structured leadership development for each advancing individual as soon as possible. Ideally, these individuals should be prepared whether or not there are immediate plans for shifts in the leadership team.
Develop a Plan for Deployment
Roles might change in five years, or they might change in six months. When the day comes, having a solid plan for a seamless leadership transition will be invaluable. Consult with advisors like attorneys and wealth management professionals when developing your plan. Their insights can help you anticipate what to expect during the process.
Align Leaders and Communicate Intent
It’s important that the existing leadership team has a clear understanding and consensus on the plans for the company’s future. A united front is important for keeping consistent messaging to all stakeholders.
Establish a Timeline
By communicating a specific timeframe for all stages of the succession plan, the company can better align their efforts to proceed.
Make Financial Arrangements
Allow yourself time early on to learn the current market value of the company and develop any necessary buy/sell agreements.
If a crisis happened tomorrow, would your business’ next generation of leaders be prepared to step up? East Tenth Group’s Leadership Transition Coaching supports your HR team by preparing future executives to succeed. Learn more now.
Succession Planning in Publicly Traded Companies
When the business is beholden to shareholders, the stakes are much higher. The many moving parts of a publicly held business make succession planning more complex, but exponentially more important.
Succession planning in public corporations is about lining up positions strategically. The objective is to develop new leaders while managing risk and preparing to stabilize growth quickly following a change.
Why Public Companies Need to Take Succession Seriously
The board of directors should be principally focused on succession planning, but that doesn’t always end up being the reality. According to a global study by KPMG, only 14% of corporate boards had a succession plan in place.
However, failing to have a plan for leadership transition is costly, to say the least. Companies who appoint a new CEO in a state of panic lose an average of $1.8 million in shareholder value.
Smart Leadership Transition Tactics for Public Companies
In a publicly-held company, succession planning must be an ongoing component of governance. Every corporation is different, and each will have different priorities when planning for the future. In general, public companies should:
Consider How Change Will Impact Culture
The culture of a public organization is a major asset. While a change in leadership is sure to have some effects on culture, those changes should not be seismic shifts. Beware of placing external hires in high-level positions. Not only can this invite unpredictable unknowns into the culture, but it can be demoralizing down the leadership chain.
Develop a Selection Criteria for Successors
For each key role, there should be criteria for success that candidates must meet. To generate these criteria, the leadership team should consider the competencies the candidates will need in order to meet the top challenges facing the organization.
Communicate Transparently with Key Stakeholders
Shareholders must be kept abreast of any plans for the organization’s future. Ensure the succession plan, criteria for new leaders and intended timelines are all clearly communicated.
Seek External Consultation
Succession planning is not a time to take any gambles. No two public companies are the same, so no two corporate succession plans should be, either. My team specializes in supporting mid-market and large firms through leadership transition planning and execution. By working directly with leaders and HR teams, we offer a personalized approach grounded in concrete experience.
Whether you represent a private or publicly-held organization, I encourage you to take the first steps in your succession planning process by contacting my team and me at East Tenth Group today.