When a company finds itself looking for a new leader to steer its business, a disciplined decision-making process is crucial. Stable leadership is at the core of every business, and rash decisions must be avoided during its temporary absence.
A well-prepared organisation has a back-up plan, and a designated deputy CEO should be ready to step in when the unexpected happens.
However, many companies fail to recognise the essential steps to ensure that the organisation is ready to move forward and avoid costly mistakes in such a scenario, especially when it comes to family businesses. Here are the key steps for an effective succession plan:
1. Facing your mortality
Last November, even Jeff Bezos told his employees that "one day Amazon will fail". One of the reasons why we get succession wrong is because CEOs often avoid facing their mortality. In Steve Jobs’ commencement address at Stanford University in 2005, he said, "Remembering that I'll be dead soon is the most important tool I've ever encountered to help me make the big choices in life".
Facing your mortality and thinking about transition periods can be sensitive, which is why planning is often postponed until it is too late. For family businesses it is vital to plan family assemblies and prioritise your relationship with your other family members.
2. Letting go
Not letting go can be detrimental to a smooth transition period, and this can be difficult for entrepreneurs who view their businesses as their legacy. For example, Luciano Benetton returned to Benetton Group at 82 years old after he left the company in 2008.
In an interview with Italian newspaper La Repubblica, he described the decline of Benetton as "intolerable pain". Many CEOs are controlling, and this is one of the reasons behind their success but also their downfall. The founder of the business must be ready to entrust the company to people who can take over the reins and implement an innovative strategy.
In many cases, governance is not taken into consideration as the crucial part of a succession plan. Governance structure needs to be questioned and constantly reviewed. The organisation also needs to make difficult decisions about who should succeed the CEO and the C-suite.
Italian billionaire Leonardo Del Vecchio has struggled to find an heir to his eyewear empire Luxottica, and since it merged with Essilor in 2017, the company has been plagued with governance issues.
There are unique challenges which are faced by family businesses when it comes to governance. This is because family dynamics can be trickier to navigate, especially when family members have a different ambition for the future of the company.
These conversations are also more difficult as it can affect family relationships, especially when there are family members who are not well suited to succeed in a role. A clear governance strategy will help improve business performance and manage the expectations of family members.
Anna Zanardi Cappon is a board advisor.
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