Why companies need a clear succession plan
Most companies fall short of having an adequate
succession plan.
RALEIGH NEWS & OBSERVER
Crescent State Bank CEO Mike Carlton is young, fit and not in danger of being pushed out of his job.
Still, he is concerned that his company isn’t fully prepared to carry on smoothly should tragedy strike.
Part of his unease is reactionary. It follows the unexpected death this month of Progress Energy CEO Bob McGehee, 64, who had a stroke and collapsed in the street during a business trip to London.
“Nobody knows what tomorrow will bring,” said Carlton, 46. “Yes, we have a succession plan, but it is probably not documented as well as it should be. We absolutely need to be prepared. Employees deserve it, and shareholders expect it.”
Carlton and other board members will meet this month to hash out more details on how the company would replace him. He sees the meeting as a healthy exercise. It will force the North Carolina bank to consider its longevity and the need to groom new leaders today for sudden or planned transitions tomorrow.
Many companies fall short in this respect.
“It’s very difficult for CEOs to face their own mortality and difficult for boards to push them to take that seriously,” said James Kristie, editor of Directors & Boards, a Philadelphia publication on corporate governance.
Sickness, death or scandal can incapacitate a corporate chief at any time and wreak havoc across an organization.
“We don’t know how long our time is or what it’s really about,” said Billie Redmond, CEO and co-owner of Coldwell Banker Commercial Trademark Properties, a Raleigh, N.C., real estate firm. Redmond just completed a company reorganization that includes comprehensive succession planning.
“One of the best things we can do for our family of employees is plan for what happens if I get run over by a bus,” she said.
Most companies have a blueprint for dealing with transitions, but too many plans are inadequate or inappropriate, experts say.
Family-owned businesses, especially, often fail by the third generation because of unrealistic succession goals that beget rivalry and ultimately can cause the company to be dissolved, said succession planning consultant Cindy Anderson of CD Anderson Associates in Raleigh.
“If you have the right people sitting in the right place, your succession plans will be much easier,” Anderson said.
But many firms don’t. About 55 percent of CEOs within five years of retirement age have no successor in place, according to a study by MassMutual Financial Group and Raymond Institute.
That’s dangerous and “leaves you with people just vying for that top spot,” Anderson said, “and the power struggle within can be really bad.”
That side of human nature is a compelling reason that succession plans should stay tightly wrapped.
At many public companies, only board directors, and sometimes an outside insurer, know what’s in a succession plan. If word got out about who is on the successor list, tempers could flare, feelings could get hurt and a power struggle could ensue.
Employees, investors and clients should know that there is a realistic and adequate plan, but that’s about it. The same is true for private and family-run firms.
“You can cause a lot of infighting in the organization by sharing too much information,” Anderson said. She once saw an engineering firm collapse because of quarrels among partners and potential successors.
The exemplary succession plans lay out who takes over, and how, where, when and under what circumstances. They are generally planned over several years and address the fundamental need to groom successors within the company.
Sudden and untimely endings are not so uncommon. McDonald’s lost back-to-back CEOs in 2004 and 2005 —- they died within a year of each other. Starbucks this month lost its Brazil CEO, who died in a car crash.