Choosing and vetting candidates to fill the integral roles of CEOs and business partners is critical for businesses that rely on specialized expertise. Many positions are ever-evolving, which means succession plans need to be updated to account for new responsibilities and roles enveloped by each position. Whether non-profit or for-profit, companies can tailor succession plans to meet their needs, no matter how large or small. Here are three ways to create an effective succession plan:
- Selecting an internal employee or appointing someone from outside the company? Appointing a successor can be done several ways. Authority can be given to a single individual, business advisors or selection committees can suggest candidates, or a board of directors may be consulted. There are benefits to hiring someone in-house: They are familiar with the corporate culture, company growth, and already have established contacts in the field. Some companies prefer external candidates, ones that provide a new perspective to keep the company progressive. The answer? Create a clear assessment list of asset requirements, competencies, and skills, and then ensure the successor meets these objectives.
- Open communication to internal candidates. If news of external successor recruitment reaches loyal internal figures who have interest in being a successor, even if the right candidate was found externally, this creates problems internally and runs the risk of losing critical business members who will seek a company that recognizes their performance. Buy-sell agreements are crucial for privately-held companies. Buy-sell agreementsgive owners the first chance to purchase interest in the company if another owner departs or passes away.
Executive development. Without a clear succession plan, the loss of a crucial decision-maker could cost a company. Business interruption and slow leadership transition affects a company’s finances and morale. Part of an effective succession plan includes building leadership in multiple executive roles so that the successor joins a team of leaders who are equally suited for their roles. The grooming process can simplify the recruiting stage and allow for a smoother transition.
Succession plans help businesses survive, and they also help preserve a company’s value for the business owners’ heirs. After building companies, the loss of an executive doesn’t have to mean the end of a business. A proper succession plan will ensure a seamless succession by outlining exactly how a company will respond to selecting a successor with the appropriate credentials. This not only gives the company members peace of mind, but the beneficiaries of the company owners as well. Business owners should not delay in having an attorney prepare a buy-sell agreement. Each owner will need separate counsel to ensure that his or her rights are protected.