CEO succession planning across different business types
25 Nov 2019
What does succession planning look like in family, PE-backed or listed businesses? And how can you get your teams ready for a new CEO in the hot seat?
Unfortunately there is no one-size-fits-all approach to business succession planning. And finding a successor to replace you as CEO can be a different process, depending on the type of organisation.
We asked a panel of experts across different business structures for their views on how CEOs can plan for a successful handover of their reins.
Succession planning in private-equity backed businesses
“For private equity owned businesses, having a well-thought-out CEO succession plan in place can act as the insurance underpinning the value of your existing team,” says Mo Merali. “Investors want to scale portfolio companies rapidly, but that can lead to impulsive decision-making around leadership.
“Analysis from Bain & Co found that almost half of private equity firms replace the CEOs running their portfolio companies and in 60% of those cases the backers hadn’t planned the change originally.
“Having a clear succession plan may help you cement your place as the incumbent CEO and prove to private equity backers that you’re forward-looking, your team is agile and well structured, and that you share an intention to scale the business.”
Succession planning in mid-market listed firms
Keely Woodley, partner, says listed, mid-market firms should set out their plans early for CEO succession and regularly review them.
“Although listed businesses tend to be able to select from a wide range of ‘homegrown’ and external talent, for people coming in it can be difficult to be immediately effective. It’s important to build an external pipeline early to supplement internal talent and ensure there’s sufficient choice when choosing a successor. Listed businesses need to plan earlier than others. The board should discuss succession every three to six months."
“The process also tends to be made public and unsuccessful board-level candidates are more likely to leave the business as a result. Care must be taken to consider alternative roles for these candidates to ensure business continuity and avoid needless loss of talent.”
Family business succession planning
Sue Knight, partner in our Birmingham office, says that leaders of family businesses may need to update their views on business succession.
“The process of choosing new leaders in family businesses has evolved considerably over time. In the past, the eldest son would have often assumed leadership, but today’s challenging and fast-paced environment has meant leadership is no longer a birthright.
“Family business CEOs must have the right qualities and experience, as well as talent and a genuine willingness to lead. Today, it’s common for an external candidate to be selected as CEO with the owning family still involved with major strategic decisions.
“Whatever the transition to a new CEO, preparation is key. A family business is a complex economic and emotional system, in which the contrasting needs of family members, board members and staff all have to be balanced.”
Embedding cultural change – a succession planning example
For newly appointed CEOs, it is important to shape your team’s culture early so that it closely aligns with your values and the style you want to work in. But a fine line exists between embedding a new culture and disrupting a current dynamic just to make your mark.
Tom Hartley, Managing Director of Lawyers On Demand (LOD), met resistance when he was brought in to move the business to a standalone company. “Because it was successful, we found it a struggle to change the culture,” he says. “People knew they were doing a good job and some didn’t want to change.”
Grown out of a division of a traditional law firm, in four years LOD expanded from 12 people and a turnover of £10 million to 100 people managing 400 lawyers around the world an £60 million turnover.
Such rapid growth made change inevitable and when the UK operations were merged with Australian and Asian businesses, Hartley determined what a new culture might look like. “It was an opportunity to ask teams what success looked like,” he says.
Access and visibility were key cornerstones of the culture Hartley introduced. “We share a single, open-plan office, there are no secrets and everybody sees everything. You have more control and it’s healthier for the senior management,” he adds. To ensure the culture doesn’t stagnate, a board member has been made accountable for employee engagement.
“This is researched each quarter and ensures the company is living the values we support,” says Hartley.
Plan for success through better team building
Ensuring your business can develop and grow after you leave the CEO role should be the cornerstone of good succession plan. Kim Turnbull James, Professor of Leadership and Executive Learning at Cranfield School of Management, offers advice on strengthening teams so that they’re ready for change.
The club, not the manager, is the reason people are willing to get cold and wet watching football. Identity matters, so if you try to re-brand or create a new purpose for the organisation, be careful not to disrupt this psychological contract. Get early feedback as it can help frame strategies that can build belonging.
Make your messaging clear
Mission statements look good on paper, but can be too vague to offer meaning to all parts of the organisation. Make the future real for people in exciting ways. There’s a reason Martin Luther King did not say: “I have a strategic plan with five action points, six objectives and 25 KPIs.”
Actions speak louder than your words
As a figurehead, few will know you individually. Perception may be very different from reality. How you spend your time, who you spend it with and the parts of the organisation you visit are vital indicators and may be as important as words.
Don’t fence yourself in
Keep your networks open and meaningful. You can’t talk to everyone but avoid developing a small group that acts as a narrow filter on all you say and hear. Your support team needs to trust you, but wider networks provide a wider range of views and opinions
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