How to Plan for Executive Succession

In the United States, approximately 60% of all organizations are headed up by Baby Boomers. The youngest Baby Boomer is now 59 years old. In nearly all cases, these leaders are starting to think about retirement.

But, as a group, they are not preparing for succession. Neither are the businesses they head up. This includes the boards they report to, the partners they work with, and so on. They are thinking about it. But few prepare.

This lack of preparation comes with a heavy price. Executive succession is more difficult than most anticipate. In fact, it’s estimated that 50% -70% of all successors fail within eighteen months. “Failure” is in the eyes of the beholder. But how the board/owners/partners behold success matters.

The reported reasons for failure are intuitive: The incoming leaders were poorly selected, on-boarded, or prepared[1]. What is slightly less intuitive is this: Executive succession is not only about finding a replacement for a position. It represents a dynamic organizational change. And it requires appropriate preparation.

The organizations that do have successful successions tend to share something in common: They prepared well. This article introduces steps you can take to prepare well.

This article is written with a search committee in mind as a reader.

Six Steps for An Ideal Succession

STEP ONE: Identify who is responsible for the succession process.

The outgoing leader should not choose their successor. There are many reasons for this. They can all be summed up as this: Outgoing leaders tend to choose the wrong person.

A search committee should be formed to choose a successor. I would recommend keeping this small – between three to six members. The membership of this search committee should be well defined as well as their authority. For example: Do they oversee the whole process and make the final decision? Or do they submit recommendations to a larger group for approval?

Within this board or committee, one person should be given the responsibility for driving the process. Successions can be complicated and emotional. If the leadership of the process isn’t clear, there is a high likelihood it’ll stall out.

Again, the outgoing leader should not be a member of this committee. They may be consulted, and their perspective is valuable, but they should not be part of the decision-making process.

STEP TWO: Support the outgoing leader with personal and financial direction.

Roughly 85% of outgoing leaders will sabotage their own exit. It isn’t intentional. But it’s so common it should be expected. There are two, avoidable drivers for this:

The outgoing leader needs a compelling personal vision: Outgoing leaders must have a picture of their future that supports their identity, purpose and provides an avenue for their energy. Leaders need something to draw them otherwise they feel pushed. And they often resist being pushed.

The outgoing leader needs to be financially prepared. Many leaders are poorly financially prepared for their futures regardless of how well they are compensated. They often don’t realize this until very late in the game. Without this personal financial preparation, you should anticipate that something will come up that will delay or complicate the succession process.

Encourage and support the outgoing leader to develop a clear and specific picture of their future and how to prepare for it financially. If they haven’t developed this on their own, they should engage a financial planner and/or a coach to help.

STEP THREE: Create clarity on the identity and future of the organization.

A successor should be hired based on their alignment with organizational values and their ability to lead the company to its vision. To evaluate either, the board must have a clear sense of both:

• Values: Form the basis of organizational culture. Organizational values should be an often referred-to framework for translating the core beliefs of the organization into consistent decisions and behaviors.
• Vision: A picture of what you are specifically trying to build and accomplish in the foreseeable future.

Don’t buy into the fallacy of handing the incoming leader a carte blanche to introduce their own values and develop their own vision. They should come in to serve the organization’s purposes. You should know what those are. Unless they are buying the business, it isn’t there to serve them.

STEP FOUR: Estimate Future Leadership & Structure

Most organizations fail to achieve their vision purely because they didn’t estimate what was required. Specifically, what they would need in terms of staffing, facilities, or other resources.

Based on the vision you’ve developed, sketch out what the organization needs to look like to easily support that vision. This isn’t precision science. It’s an educated guess at :

– The org. chart for the future (functions, positions, and staff)

– Any new, expanded, or changed resources or facilities.

Based on the information from Steps 3 and 4 you should be able to describe the leadership characteristics required to lead this vision. This includes demographics, skills, qualifications, experience, personality, relational connections, and so on. Read here for more: “How to Choose a Leader”

STEP FIVE: Stabilize and Complete

Successions trigger anxiety and uncertainty even in the best of situations. Mitigate this by creating as much stability as possible.

This includes, but is not limited to:

• Addressing conflicts (internal or external).
• Formalizing personality-dependent functions/roles.
• Transferring/capturing institutional knowledge.
• Adopting or updating key policies: Financial management, compensation, risk, etc.
• Emergency succession planning: Click here for this document. The process of developing an emergency succession plan will support your overall succession planning efforts.
• Completing legacy projects (of the outgoing leader) or bringing them to a natural transition point.

STEP SIX: Grow/Search and Select

Successful successors may come from within or without the organization. Internal successions (where an organization “grew their own”) have a higher likelihood of success. But this isn’t always possible or desirable. Either way:

• Define the eligibility requirements of a successor.
• (If grown internally) Define the selection process, the growth path & the timeline. For internal hires, establish very clear criteria, including performance, that will indicate readiness. This provides a target for the candidate and minimizes second-guessing and debate amongst the hiring body.
• (If selected externally) Define the selection criteria, process, and timeline. In many cases, an executive recruiter will both speed up the process and provide higher-quality candidates.

Ideal timelines are situationally dependent. But assume:

– Search: Two months to one year.

– Placement (for outside hires who are rarely immediately available): One to six months.

– Onboards/handover: One to three months.

– Getting the new leaders up to speed: Up to one year. (Some leaders take longer – but that is usually a sign of poor selection.)

On-boarding & Transition

• Develop a plan and timeline for both onboarding and handover. This is often situational to the successor. It may include:
  • Participating in the functional areas of the current leader’s role, especially areas outside of the successor’s current experience.
  • Orientation to the key functions and staff within the organization. (If grown within, should include training on how to manage key functions.)
  • Mentoring and/or coaching.
  • Working on special projects or opportunities to stretch skills into aligned areas.
• Identify an unambiguous transfer date. Don’t leave it to when the outgoing or incoming leaders ‘feels’ ready. Instead, set a date and prepare with that time in mind. Ambiguous timeframes increase anxiety and undermine the process.

That’s it! Now you know the steps for a successful, planned executive succession.

Five tips for making this easier:

1. Cultivate a strong internal culture before succession is needed.
2. Practice providing leadership with the executive. Don’t leave everything up to the leader. (For the board or partners.)
3. Develop a habit of developing strategy, planning, and implementation.
4. Address issues and don’t defer leadership decisions.
5. Build systems: Write policies down, and record procedures.

These tips are normal best practices that directly contribute to healthy and high-performing organizations – even if succession isn’t on the horizon. By practicing these normally, you’ll find that succession will be easier and have a higher likelihood of success.