Succession planning critical for business

One of the most critical issues concerning businesses is ‘Succession planning’, or ‘Creating a second line of management’.

A single great idea, a vision, a belief can spark off a successful business. But what empowers it to create lasting value for its stakeholders and society, is fostering capable and committed leaders for the future. Leaders who can take the organization to the next level and establish an enduring legacy.

More so in the light of globalization, increasing workforce flux, shifting talent needs, evasive consumer and employee loyalty, the need to create committed, capable leaders is more vital then ever before.

With global integration of markets, corporate governance has become a common theme in the global investment community and no organization can now remain immune to the pressures of global standards and compliance.

Hence increasingly around the globe, CEO succession planning is an important function of the board of members. Also with average CEO tenures continuing to shrink, not only is succession a priority, but it is also a recurring one.

Succession planning should not be limited to the top end of the organization. If the organization has to thrive in a global marketplace, then it is essential to create a pipeline of leaders throughout the company. Each employee has to feel empowered and accountable for his performance to create an inclusive culture of ownership and inspired performance.

But in spite of its pervasive essentiality, succession planning still continues to remain a sore point for most organizations.

Research indicates that almost 70 per cent of family-owned businesses fail or are sold before the second generation, while only 10% remain active privately held companies, for the third generation to lead.

Some of the obstacles to succession planning, especially in family owned businesses include:

• Transition of power between owners and management • Dealing with divergent family interests, • Maintaining objectivity in face of family feelings • Dealing with family friction, nepotism • Informal policy structures • Perception of Fairness – returns from ownership vs. reward for management

Once the organization has clearly demarcated the need for succession planning, the process has to start with an objective and unbiased analysis of the organization structure. This will begin with a clear understanding of the current and optimal level of roles and responsibilities, followed by the creation of a structure based on the company’s current and future business operations’ needs. Because it is difficult to demarcate between family and business relationships, clarity of role is particularly crucial in family firms.

The next step is to evaluate the skills and qualifications based on the new organizational structure. This will call for some uncomfortable steps including replacing or bringing in new talent.

Once the right talent has been brought in, the next challenge is retention and empowerment. Establishing a fair and transparent process of capability evaluation and subsequent empowerment might entail further decentralization of the decision-making process.

Also adequate training and development programs will have to be introduced to enable skilled employees to be prepared for taking on senior management assignments in the future.

In family owned businesses, additional attention will have to be paid to defining roles, compositions, and functions of family governance and company’s own governance bodies.

Finally, a fair and inclusive remuneration system with right incentives will be necessary to retain and encourage good talent, one that is defined by performance and not by ties to the family.

In effect, succession planning requires a powerful level of commitment, internal control and high corporate governance practices.

Visit blog.corporatesufi.com