Tips for Successful Succession Planning in 2018 By Thomas J. Lloyd lll


Tips for Successful Succession Planning in 2018

by Thomas J. Lloyd III

For most large corporations with Boards of Directors, various levels of company management, and vast talent pools from which future leadership can be drawn, succession planning is an integral part of the ongoing success of the business. Within such organizations, it is recognized that as the company evolves with new employees, new technology, new culture, and new products or services – not to mention all of the new challenges that are associated with each of these – selecting and transitioning to leadership more adept at handling these changes is vital to ensuring that the business stays ahead of industry trends and challenges. 

But for smaller, and especially family-owned businesses, succession planning tends to be a primary challenge, in and of itself.  Often, existing leadership within the company will fail to see the merit in planned transitions, will believe that it may still be “too early” to give up control, or may otherwise simply be unwilling to hand over leadership of the company that they have built. Nonetheless, in the immortal words of Eva Perón (“Evita”), “Time is my greatest enemy.” No matter the size of the company or the will of its leadership, time will eventually prevail and will require the company to undergo some form of succession, planned or otherwise. Accordingly, management and HR best practices suggest that a well-developed and firmly-implemented succession plan is the best way to avoid the challenges and pitfalls associated with leadership transitions. This article will explore some of the considerations that existing management and HR should take into account as they navigate this delicate topic.

Why is Succession Planning an HR Issue?

When we speak of transitioning into new leadership for a company, it is important to keep in mind that we are not just talking about management. Yes, the most apparent changes during a succession cycle will happen at the top, but the impacts of management changes extend throughout the organization. There are (at least) three different classes of employees who are materially affected by changes in leadership: Past, Present, and Future employees. Understanding how to effectively communicate the upcoming changes to each of these classes of employees will help ensure that transitions are known, expected, and understood.

Past Employees

“Past” employees are those who are nearing the end of their own careers, and who have likely been filling support roles for the existing management for a long time. Like the existing management, these employees may often perceive that implementation of a succession plan necessarily spells the end of their own careers, whether or not they are ready and able to meet that end. As the modern world continues to evolve in efficiency and technology, many “past” employees may justifiably fear that their value will decrease exponentially as the existing managers who rely on them are phased out. Similarly, many will recognize that evolution in management is likely to go hand-in-hand with evolution of certain aspects of the company, and those changes often threaten the “past” employees who are unsure that their contributions to the success of the company will still be wanted or needed as those changes materialize. These employees will likely present a challenge for HR, as the employees’ fears may be well founded and a management change may in fact require a reduction in the workforce.

When a succession plan is known and understood, however, these “past” employees are far more likely to see the changes as an organic part of the health of the business. Indeed, the most effective succession plans are established well ahead of time, and are part of a larger business or strategic plan that is designed to make the transitionary periods less disruptive and less threatening. When succession planning is treated as one piece in a larger puzzle, a transitionary cycle in leadership will be far less likely to have undesirable ripple (or seismic) effects for HR down the line.

Present Employees

The second class of employees who are affected by changes in the management of a company are the “present” employees. These employees have not been around as long as the “past” employees, and in fact may still be relatively new to the organization.  Their interests are not always aligned with the “past” employees, as they are less beholden to the long-standing ways of how the company has been run and have less established relationships with the existing management.  While mostly satisfied with their jobs, these employees often see certain habits of the existing management to be outdated and inefficient. “Present” employees tend to be more technologically savvy and are adept at noticing the small (or large) inefficiencies in the company.  While these employees will usually not voice their concerns to the existing management, they are most likely to welcome changes in management. Despite their criticisms, however, these employees are mostly satisfied in their jobs and would far prefer to not be forced back out into the labor pool. They take pride in their company and, like the “past” employees, prioritize job security as a primary concern.

For HR, the challenge with “present” employees arises when a company lacks an identifiable and understood succession plan. Unlike the “past” employees who may see a management transition as a threat, “present” employees are more likely to be concerned about the company simply fading off into non-existence when the existing management ultimately departs on their own terms. When the company lacks a known succession plan, these employees – many of whom are in their prime and are poised to perhaps one day be leaders in the organization, themselves – will understandably keep their eyes open for other, more stable job opportunities. Leadership stagnation in small- and medium-sized businesses is an oft-cited concern by departing employees who see no viable future within the organization. A well-developed succession plan can alleviate most, if not all, of these concerns.

Future Employees

The final class of employees who are impacted by succession planning are those who are not yet employees, but who the company may wish to acquire at some point in the future. These are the new graduates, the job-seekers, the potential lateral hires, and the future industry leaders. Like the “present” employees, “future” employees are looking for a company that will provide stable growth opportunities as they mature into their profession, and are seeking companies with a healthy forecast. More and more, these employees are asking questions about prospective employers’ succession plans during the interview process, because they recognize that, by and large, most companies are behind the eight ball in their development of strategic and successful transition processes.

As HR departments are often tasked with recruitment and hiring, these “future” employees’ concerns should be addressed even before a first paycheck is issued. Especially in highly-competitive industries, it is becoming more and more common for bright “future” employees to forego employment with well-established companies if they see a more healthy and organic succession process within the business structure of market competitors. Thus, while stale management may be stagnating advancement opportunities within the company, it may also be deterring the outside talent pool.

Why is Succession Planning a Legal Issue?

Beyond the foregoing HR considerations, there are several legal issues that can arise when a company fails to adequately plan and prepare for management succession. In a worst case scenario, such a failure to plan can lay the groundwork for an incoherent and hurried transition that is complicated by one or more disastrous lawsuits. Under the wrong circumstances, this combination could be catastrophic for the organization.

The good news is that, as with most any legal issue, proper planning and risk management can do a lot to ensure that potential problems are largely avoided. Just as there are the three categories of employees that must be considered for HR purposes, there are a variety of legal issues that must be kept front of mind when planning and implementing a management transition.

First, in any discussion involving succession planning, the obvious elephant in the room is age. While there are certainly exceptions, succession plans are primarily focused on when and how to decide to remove existing management at the end of their careers. With no defined strategy or agreed-upon plan, it is easy to see how efforts to change management can result in claims of age discrimination.  Similarly, as noted above, the aftermath of an unplanned or poorly-executed leadership transition can include organization-wide structural and staffing changes, often leading to the unexpected termination of those “past” employees who may no longer fit in with the evolving company environment. This situation is rife with risk for lawsuits based upon age discrimination.

Beyond the obvious age-related issues, a company’s lack of a succession plan may present other legal challenges when the company’s best interests no longer align with the existing leadership’s view of their role in the management of the company. While every company and manager is bound to have their own quirks and gaffes, the cultural revolution that is presently ongoing in American society presents unique challenges for companies with generation gaps between leadership and workforce. Bluntly stated, we all know that one manager who still thinks it’s funny to make inappropriate jokes in the break room, or who is most prone to invade a female employee’s personal space at a workstation.

A successful succession plan must therefore take into account a broad array of issues likely to arise with a management transition. Not only must the plan address the “when” and the “how” of the management’s departure, it must necessarily address how staffing and organizational changes will also be implicated. Finally, it must provide a means by which others in the company are able to force a change if and when it becomes necessary for the ongoing health and success of the business. To be sure, these are delicate topics, with unique challenges that will arise in every organization. There is no simple answer or universal succession plan that can be simply copied and pasted into company policy.

Devise a Succession Plan for Your Company

Considering that every organization will have its own set of challenges in forming (and implementing) a succession plan, the following few steps will assist in finding the solution that is right for your company.

First, realize that the topic is, by its nature, a very sensitive topic for the existing management.  Whether the company is one that was started by the current managers, or one that has been carried on by them, these people have dedicated their lives to building the business. The topic of succession necessarily requires them to acknowledge their own mortality, and this is a heavy matter. Accordingly, every effort to devise an effective and successful succession plan ought to start with an honest conversation with the existing leadership. While not 100% necessary to transition the business into new leadership, it is certainly helpful if everyone is on the same page about where the company is going and what steps are necessary to get there. 

With buy-in from the existing management, the next step is to negotiate the terms of the succession. This process involves considerations of the current leaders’ exit, the next leaders’ selection, organizational or structural adjustments that will be necessary with the implementation of change, the future and direction of the business, and potentially many other matters. As stated above, there is no one-size-fits-all succession plan; rather, it must be specifically tailored to the particularities of the management, the business, and the industry. Regular consultation with the company’s financial and legal advisers is integral to this process, and the end result of these negotiations should be memorialized in the corporate documents.

Finally, a successful succession plan should be strictly implemented. While the issue of management’s retirement is delicate, and while it may seem insensitive to be closed to exceptions, it is a very dangerous slippery slope to begin deviating from the plan or otherwise making special considerations. In implementing a succession plan, it is important for shareholders, HR, and management to remember that the ongoing success of the business depends on healthy and organic transitions.

Although creating and implementing a successful succession plan requires traversing some significantly mine-filled territory, it can be successfully accomplished when all parties come to the table with a unified interest in the continued viability and success of the business. With the best interests of the organization top of mind, this seemingly difficult and arduous task can be made much simpler and nontoxic.