According to a recent survey of 740 finance chiefs, only 34 percent reported that a succession plan is in place for their role. Yet succession planning may be one of the most important items for a busy CEO to consider for the long-term health of their company.

Why is Succession Planning Important?

A 2015 report by Strategy& states that companies lose up to $1.8 billion in shareholder value when they have to fire their CEO compared to if the succession was planned. The report also states that large businesses in the recent years lost a reported $112 billion in market value due to forced CEO succession. These numbers are too large to ignore.

Succession planning, in its simplest terms, means identifying and developing successors to fill key roles in the company. It means having a pipeline of insiders mentored and developed to eventually step into leadership roles to ensure business continuity. As seen on from the statistics above, a change in CEOs will always cause uncertainty. However, the market is more likely to react favorably when they know an organization has a firm succession plan in place.

For these reasons, having a good succession plan is important to ensure continuity and to maintain business performance.

Succession Planning is Great for Managerial Development

Having a firm succession plan in place is also a good morale boost for the management team. It indicates that the company values its managers’ developmental needs and helps to retain good managers as they can see a clear path for advancement within the business. The move does not always have to be upwards; sideways movement into other roles in the business can be a good way to effectively round up a manager’s skill set. In fact, as a CEO, it is best that the successor has a good understanding of all aspects of the business.

Who Is Responsible for Succession Planning?

The decision about who is responsible for succession planning is not to be taken lightly. Whoever is driving this will need to ensure there is a transparent process in place. While the HR team can be responsible for the minutiae, the Board or the CEO will need to steer the process forward. Here are some important questions to consider:

  • Which positions are key?
  • What competencies does the post holder need?
  • Who should be considered?
  • What skill gaps are present and how can they be developed?

Succession planning does not happen overnight; it may be that it will need constant review and tweaking after periodic evaluations. However, it is a transparent process that could mean the difference between a great upheaval or a smooth transition from an old leader to a new one. Simply put, this is one area where having a plan will truly pay off and it will positively impact the team, the customers, and the bottom line of the business.

Please contact me today if you have any questions about succession planning for your company or organization.