An exit plan is a customized, written plan that monetizes a business; meets the owner’s business, personal and financial goals; protects his or her wealth; and moves the owner into his or her next stage of life.
A succession plan, on the other hand, focuses on the human side of the business. In the simplest terms, it aims to ensure the success of the company when the owner/CEO retires by moving senior management into leadership roles. A succession plan might take several months to write and several years to execute. Depending on the readiness of senior management, the type of exit, and the current payout, it’s possible for a succession plan to take three years to 10 years to carry out. However, if a business is systematized, has clean financials and has mature management in place, it can be “sale ready” in less than a year.
Following are 10 things every CEO should remember about succession planning.
1. “Successful transition is the last act of a great leader.”
The succession process cannot begin until you can visualize exiting the business. You must also have a flexible retirement date in place, as well as a written plan. This stewardship will lay the groundwork for a successful transfer of leadership, a positive legacy and a stable future for the company. As Francis Hesselbein said, “Successful transition is the last act of a great leader.”
2. Complete an exit plan and update legal agreements.
A large part of the exit plan involves income replacement. Your exit plan must enable you to see yourself as financially independent from the business, or you will never be able to separate from the business. Update legal agreements to protect the business and your estate during this process.
3. Establish a clear direction and focus.
At the beginning of the succession process, revisit the company’s strategic plan, vision and mission with the senior leadership team. This will allow team members to establish their roles while working together, and it will give them a stake in the plan for the company’s future. It will be the management team’s responsibility to engage the company in this plan, communicate the plan and ensure its implementation.
4. If you fail to plan, you plan to fail.
The Family Firm Institute, www.ffi.org, reports that more than 70 percent of businesses fail to transfer to the second generation or an outside buyer. Ninety percent of businesses fail to transfer to the third generation, according to the institute. Do not take this lightly. If you fail to plan, you plan to fail.
5. Develop management succession.
Management succession is more than the replacement of talent; it is the development of talent. Empower the senior leadership team to reexamine existing policies and procedures, and make improvements where necessary. Let the management team lead this process and direct the education effort for the entire company.
6. Develop leadership succession.
You have strong managers in place who drive the company, and meet deadlines and corporate goals. But now, they must rise to a higher level of leadership. They must determine the direction the company is taking and build consensus among the staff. How do you change their behavior, build self-awareness and still maintain their spirit? This can be accomplished through peer evaluation, experience and personal coaching. There are many processes and proven exercises to move managers to the next level. This “soft” process is common in large corporations, the military and education settings.
7. Understand emotional intelligence.
Most of us recognize the value of a high IQ (intelligence quotient). However, studies have found that EQ (emotional quotient or emotional intelligence) is the key ingredient for leaders and millionaires. The book “Emotional Intelligence” considers non-cognitive skills to be more important than IQ in the workplace. Author Daniel Goleman states that emotional intelligence is reflected in an employee’s level of self-awareness, how he or she uses their gut feeling, self-control of emotions, empathy, and the ability to inspire and influence others.
8. Time is your best friend with succession.
Succession and behavioral change take time, and the sooner you start training, the better your results will be. There are three parts to this training: education, coaching and stretching. You will spend about 30 percent of your time educating and coaching. The key is to leave 70 percent of your time for the stretching process. This is where managers are field-tested, apply their learning, make mistakes, adapt and mature. It is the most important aspect of the process.
9. Coaching the new CEO.
It is every CEO’s responsibility to ensure his or her successor is prepared to lead the company. Meet with your successor and together determine the process, timeline and curriculum. Remember, this process is all about the new CEO, not you. Your role is to teach, coach and ensure the company’s future success. The new CEO’s management and leadership style likely will differ in some way from your style. Let the new CEO find his or her own path, unless you see a disaster in the making.
10. You will feel like a lame duck.
For each CEO, the succession process is different, yet the same. At times, you will feel like a lame duck. The process will be more emotional than you anticipated, and you must focus on life outside the business. Eventually, your phone will stop ringing, and managers will bypass you and move directly to the new CEO. You will be out of the loop. When this happens, it means the process is working as designed, and you have succeeded where most CEOs fail. Congratulations, and welcome to the Lame Duck Club.