The question of ownership succession is one of the items that buyers are most concerned about when examining a potential acquisition. Specifically, does the target seller have a documented succession plan in place if the current owner were to? Has the company developed middle-management talent that has been (or can be) groomed as potential executives to replace the current owner?
According to Debbie Zmorenski, co-owner and executive director of LSA Partners (a business management consulting and training company), succession planning for upper management is one of the most critical tasks an organization can perform, and yet it is often the most neglected task.
Many companies have comprehensive plans and procedures for replacing front-line supervisors and middle managers. But true succession planning that focuses on critical management positions, such as ownership succession, is most often inadequate or nonexistent in many corporations. This is especially true of most middle-market companies.
According to Zmorenski, a recent study by the Institute for Corporate Productivity showed that more than two-thirds of polled organizations are not immediately prepared to fill a suddenly vacated critical leadership position, and just a third have identified an internal interim successor should their CEO suddenly depart. Less than half (45 percent) of all respondents reported that they have a formal succession plan in place, and only 46 percent conduct regular talent reviews to gauge the readiness of who may be counted on to fill leadership roles in short order.
To aid companies who are lacking in the development of a formal succession plan, Zmorenski recommends the following strategies to help you get started:
1. Identify an internal talent pool ofwho would like to be considered for promotion and are willing to work to be developed toward that goal. Offer internal and external career development and specific skill training to meet those individuals’ needs.
2. Develop a hiring process that identifies candidates who are the right fit for the company and have the potential to fill the qualifications for future leadership.
3. Clearly define a promotion process that identifies internal candidates who meet the established current and future criteria for leadership and operational performance. Develop clear leadership competencies for which all supervisors and managers are held accountable. Evaluation of each individual’s performance as it relates to the leadership competencies should be formally reviewed and documented at least twice a year.
Identifying and developing middle-management talent with the goal that eventually one of these individuals will be groomed to replace you is one of the most important steps you can take as the owner of a middle-market business. However, keep in mind those individuals you identify as your replacement should NOT be immediate family members. Buyers will want to ensure that if you leave, your successor will stay.
Often family members are too emotionally involved with the business to fully embrace changes that new ownership may implement. Also, be sure that the individual(s) you are grooming has the leadership skills necessary to give potential buyers the confidence that the transition to new ownership will go smoothly.
Since it takes time to adequately hire, train and develop middle-management talent, it is important for you to start the process long before you contemplate the sale of your company. One of the hardest skills for entrepreneurs to develop is the ability to let go of complete control of all facets of the organization and allow other managers to make critical decisions. However, the sooner you begin to groom your managers to take your place by allowing them to have a greater hand in the decision making process, the better off you will be when a potential buyer asks you: So, who will take over when you leave?
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