Business leaders are often too involved in the day-to-day running of the business and lose sight of longer-term, more strategic priorities. The penalty for failing to tackle leadership or ownership changes can be significant to the business.
Many family businesses have been in existence for more than five decades and still exist today. As the first-generation individuals begin to step down, we’re seeing a shift to the second- and third-generation ownership. It is estimated that approximately $1 trillion in assets will be transferred to the next generation of family-owned companies over the next decade in the Middle East.
The transition from the first to the second-generation, and increasingly, the second- to third-generation will have tremendous implications on the sustainability and growth of these companies. Many successful businesses display solid profits but fail to properly plan for a complete transition to the next generation of leaders.
Lack of a clear, strategic succession plan can cause disruption, conflict and uncertainty within the business, making it vulnerable to an acquisition or takeover.
Planning ahead can have many benefits. The priority is to ensure leadership continuity which is an important factor to keep employees engaged and ensure retention. It allows time to hire internal candidates for key positions, therefore avoiding the cost of external searches.
Internal candidates know the organisation better, and therefore have a better chance of success than external hires. It also helps retain good people because they see opportunities for growth and will stay on to pursue these.
A strong talent strategy can help fill leadership positions quickly, avoiding the potential cost of unfilled positions and errors from a lack of leadership which could potentially have legal consequences or missed opportunities.
Additionally, the absence of a succession plan puts the business at risk of financial loss. Lack of leadership in an organisation causes panic and uncertainty among employees and within the business, affecting work and capital flow. In order to avoid alarm in the workplace, a succession plan that is clearly communicated to the company’s stakeholders must be put in place.
As expected, succession planning doesn’t happen overnight, and is best taken place as phases. First it is important to identify the roles critical to the business and the pool of successors that best fit the organisation’s requirements. Additionally, ensuring the right assessments to determine readiness levels can help solidify the next generation of company leadership.
Leaders often first look at the current reporting structure and organisational chart to take the role of the new leader. However, it is also important to think of an organisation’s operating structure and how it may change over time.
They must consider how functional activities will evolve as the business grows, while also looking at the experience of the shareholders during this significant change. These factors need to be reviewed before selecting the people that will take over the function.
Additionally, executive leadership involvement is essential in the succession planning process. The company’s top leaders should be fully on board with the plan to bring along the next generation and must meet frequently to discuss strategic talent management issues. Succession must be integrated with the company’s business strategy and operations, rather than treating it as a stand-alone process.
It is also essential to empower the young generation coming in, making sure they are aligned with the vision of the business and contributing positively to sustain it.
The ultimate results of a business succession plan depend on the adherence and commitment to it from the organisation. It requires high level of engagement and continuous efforts to keep the succession moving forward, despite the interruptions of operational needs and unexpected changes.
Mustafa Faizani is CEO of IMETA region at Mercer.