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Successful Succession Planning requires a long-term approach

23 Mar 2020

It’s an inevitable truth for any long-standing business that, sooner or later, there will have to be a change at the top of the organisation.

In cases where this can be proactively prepared for, this truth translates into the need, sooner or later, to replacing successful, long-serving senior managers with the next generation, a process which always brings with it question marks about how to make the right choices.

Experience suggests that, while some companies manage to make these changes without any noticeable bumps along the way, others experience significant difficulties when a new pair of hands takes over at the helm.

To draw a sporting example, Manchester United experienced more than two decades of unparalleled football dominance under Sir Alex Ferguson, but having failed to make the right choices around his successors and their players, the club has had a rather spectacular fall from grace over the last five years.

So, if your business is to avoid any similar trepidations, what are some of the key things to consider around succession planning?

Perhaps the most crucial thing to note is that succession planning should ideally be a long-term process that is aligned to a company’s commercial objectives, rather than something done as a reaction to an immediate situation.

This approach gives organisations the best possible chance of identifying outside opportunities, or creating and nurturing the talent required to manage its business growth objectives in the future from within the business.

If you are looking to sell to a third party, seeking out potential buyers some time in advance of when you would actually want to sell can be a great advantage. This allows all parties the time to communicate their expectations, to negotiate the terms of the deal and to undertake some levels of due diligence on each other and the target business. It also allows the parties sufficient time to obtain professional advice on the transaction rather than rushing into an arrangement at the last minute that may not put both parties on even ground.

It’s also important to look inside as well as outside your business to identify, nurture and maximise your available talent, and to also examine both current performance and future potential. This would not only be appealing to a prospective outside buyer who would have confidence in the work force, but may also open up the possibility of a management buyout whereby the business is bought by the existing managers and executive directors.

Business Succession Planning

Just as good ideas can come from anywhere in a business, so can good people – your future company leaders might not yet have had the chance to show everything they could do, but giving them access to the training and development opportunities required to help them realise their potential will benefit everyone in the long run and may help you spot hidden talents in less obvious areas that have the characteristics required for the bigger stage. Communicating future plans for the organisation and their individual prospects within it will also encourage them to remain in the business for the long term, as they will be invested in their future ownership potential.

Other things to consider:

  • Do you want to go and enjoy the fruits of your labours straight away or are you willing to stay with the business for an agreed period to ensure a properly managed transition?
  • If you’re looking to sell to a third party, what provisions do you want to be made for the company’s employees as part of any deal?
  • Being clear on all these points from the beginning and ensuring staff, clients, suppliers and other business stakeholders know what’s happening – most especially if it’s a family business – will help to make the whole process as smooth as possible.

Before any of this though you will need to consider your position. Do your company’s articles of association or shareholders’ agreement dictate a process for selling shares? For example, if you are a majority shareholder looking to sell to a buyer who wants to buy all of the shares in the company, do your company’s articles of association or a shareholders’ agreement dictate whether you can force the minority shareholders to also sell? Alternatively, are the minority shareholders’ interested in buying out your share? These are questions that you will need to ask yourself or seek professional advice on before taking any steps to sell the business, particularly if all of the shareholders in the company are not in agreement with the sale.

Overall, as the old saying goes, if you fail to prepare, you prepare to fail.

For more information on any of the above, or how we can help you or your business, please contact Abby Dorani or call 0191 232 8345.