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MANAGEMENT The key to management succession planning is

preparing a written succession plan. This

document provides for the continued operation
SUCCESSION of a business in the event that the owner—or a
key member of the management team—leaves

PLANNING the company, is terminated, retires, or dies.

It details the changes that will take place as
leadership is transferred from one generation to
Copyright © 2018 the next. In the case of small businesses,
Guide by Dr. Salim Hajje Ph.D.,
Strategy Consultant - Business Unlimited - succession plans are often known as continuity
plans, since without them the businesses may
In this guide you will learn about:
cease to exist. Succession plans can provide a
 PREPARING FOR SUCCESSION number of important benefits for companies that
 FOUR STAGES OF SUCCESSION develop them. For example, a succession plan
 ALTERNATIVE SUCCESSION MODELS may help a business retain key employees,
 SUMMARY reduce its tax burden, and maintain the value of
its stock and assets during a management or
Management succession planning is the process
ownership transition. Succession plans may also
of preparing an organization for a transition in
prove valuable in allowing a business owner to
leadership. Succession planning is helpful when a
retire in comfort and continue to provide for
management change occurs due to unforeseen
family members who may be involved with the
circumstances, such as the sudden death of a
corporation's chief executive officer (CEO). But it
is also important in ensuring a smooth transfer of
power under normal circumstances.
"Management succession planning will allow an
institution to keep moving forward when the
inevitable occurs." Retirement, career mobility,
ill health, termination, or death will require the
appointment of a new chief executive officer at
some point.
One important aspect of management succession
planning involves evaluating the skills of people
in the organization and identifying those
employees who have the potential to ascend to
top management roles. In this way, succession
planning encourages staff development and
sends a message to employees that the
organization is serious about developing people.
It may also persuade talented employees to
remain with the company rather than looking
elsewhere for growth opportunities. Grooming a
successor from within the company can save the
time and expense of hiring a new leader from
outside. It also aids in continuity, as an insider
might be more likely to follow through with
current plans and strategies.

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The plan must be carefully structured to fit the
company's specific situation and goals. When
completed, the plan should be reviewed by the
company's lawyer, consultant, accountant, and
One of the main reasons business owners should
take the time to create a successful continuity
plan is that they should want to get out of the
business alive, with as much money as possible.
To do this, the business owner has three basic
options: sell the company to employees, family
members, or an outsider; retain ownership of
the company but hire new management; or
Despite the many benefits of having a succession liquidate the business. An employee stock
plan in place, many companies neglect to ownership plan (ESOP) can be a useful tool for
develop one. This oversight may occur because the owner of a corporation who is nearing
the CEO or business owner does not want to retirement age. The owner can sell his or her
confront his or her own mortality, is reluctant to stake in the company to the ESOP in order to
choose a successor, or does not have many gain tax advantages and provide for the
interests beyond the business. Although fewer continuation of the business. If, after the stock
than one-third of family businesses survive the purchase, the ESOP holds over 30 percent of the
transition from the first generation to the company's shares, then the owner can defer cap-
second—and only 13 percent remain in the family ital-gains taxes by investing the proceeds in a
for more than 60 years—just 45 to 50 percent of qualified replacement property (QRP). QRPs can
business owners establish a formal succession include stocks, bonds, and certain retirement
plan. "Succession and the planning it entails is accounts. The income stream generated by the
equivalent to planning one's own wake and QRP can help provide the business owner with
funeral." But the fact is that the transfer of pow- income during retirement.
er from the first to the second generation sel-
dom happens while the founder is alive and on FOUR STAGES OF SUCCESSION
the scene. The succession transition is the most Succession should be viewed as a process rather
agonizing change I have ever seen CEOs and top than as an event. We indentify four main stages
management teams confront. Up to 80 percent in the management succession planning process:
of businesses may be facing the management initiation, selection, education, and transition.
succession issue at any given time. In the initiation phase, possible successors
learn about the business. It is important for the
PREPARING FOR SUCCESSION CEO or business owner to speak openly about the
business, in a positive but realistic manner, in
Experts claim that management succession
order to transmit information about the
planning should ideally begin when the CEO or
company's values, culture, and future direction
business owner is between the ages of 45 and 50
to the next generation.
if he or she plans to retire at 65. Since
succession can be an emotionally charged issue, The selection phase involves actually
sometimes the assistance of outsider advisers designating a successor among the candidates
and mediators is required. Developing a for the job. Because rivalry often develops
succession plan can take more than two years, between possible successors—who, in the case of
and implementing it can take up to ten years. a family business, are likely to be siblings—this

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can be the most difficult stage of the process.
For this reason, many business owners either
avoid the issue or make the selection on the
basis of age, gender, or other factors besides
merit. Instead, we recommend that the business
owners develop specific objectives and goals for
the next generation of management, including a
detailed job description for the successor. Then
a candidate can be chosen who best meets the
qualifications. This strategy helps remove the
emotional aspect from the selection process and
also may help the business owners feel more
comfortable with their selection. The decision
about when to announce the successor and the
schedule for succession depends upon the
business, but an early announcement can help
reassure employees and customers and enable
other key employees to make alternative career
plans as needed.
Once a potential successor has been selected, make the transition as painless as possible for
the company then enters the training phase. himself or herself, the business owner should al-
Ideally, a program is developed through which so be sure to have a sound financial plan for re-
the successor can meet goals and gradually tirement and to engage in relationships and ac-
increase his or her level of responsibility. The tivities outside of the business.
owner or CEO may want to take a number of
planned absences so that the successor has a ALTERNATIVE SUCCESSION MODELS
chance to actually run the business for limited
The Final Test of Greatness, a number of steps
periods. The training phase also provides the
companies should follow in preparing for
business owner or board of directors with an
opportunity to evaluate the successor's
decision-making processes, leadership abilities, These steps include:
interpersonal skills, and performance under  Establishing a formal policy regarding family
pressure. It is also important for the successor to participation in the business.
be introduced to the business owner or CEO's
 Providing solid work experience for all
outside network during this time, including
employees, to ensure that succession is based
customers, bankers, consultants and business
on performance rather than heredity.
 Creating a family mission statement based on
The final stage in the process occurs when the
the members' beliefs and goals for the
business owner or CEO retires and the successor
formally makes the transition to his or her new
leadership role. We stress that the business  Designing a leadership development plan with
owner can make the transition smoother for the specific job requirements for the successor.
company by publicly committing to the  Developing a strategic plan for the business.
succession plan, leaving in a timely manner, and
 Making plans for the preceding generation's
eliminating his or her involvement in the
financial security.
company's daily activities completely. In order to

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 Identifying a successor or determining the departure of the owner or CEO.
selection process. Many business leaders are reluctant to plan for
 Setting up a succession transition team to what will happen when they are no longer with
keep decision makers informed about their the company, usually because they find it
role in the changes. unpleasant to confront their retirement or
mortality. It may be helpful to consider
 Completing the transfer of ownership and
succession planning as an extension of employee
development programs. "Succession planning,"
Throughout all these stages of preparation, take William T. Marshall wrote in America's
note, communication is key. Community Banker, "should reach deeply into an
Several steps involved in developing a written institution's management ranks to prepare
succession document. managers at all levels for career advancement,
These steps include: perhaps to the very top."
 Gathering information, on both the personnel
involved and the company itself.
 Choosing advisers, including continuity
specialists and people who will be involved
 Deciding upon the company's objectives,
including financial and personal goals, as well
as those related to ownership and control.
 Laying out the components of the plan.
 Preparing the formal documents and obtaining
funding as needed.
 Reviewing the plan every one to three years or
whenever the company's personnel or
structure changes.
A final consideration in succession planning is for
the owner or CEO to decide what he or she will
do after concluding involvement in the business.
This step, which is something like a personal
succession plan, is important in helping the
business leader make a successful transition.

"It's so much easier to let go of something when

you have a new direction in which to move."
Barrie Greiff psychiatrist
Although management succession planning can
be problematic and even painful, it is vital to
ensuring the continuity—and perhaps even the
continued existence—of businesses following the

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