Succession Planning: Is Your Business Prepared?
When 80 year old Rupert Murdoch finally steps down as Chairman and Chief Executive of News Corporation, it was until recently widely assumed that his son, 38 year old James Murdoch, the heir apparent, would take the helm at the global media empire. But the phone hacking scandal at the News of the World and the public and political outrage which has followed has now brought into question exactly who may replace Mr Murdoch Snr and will his departure now be hastened by events of recent weeks?
The dilemma of who succeeds the boss isn’t just an issue confined to global organisations such as News Corporation; many small business owners, especially family run firms, have a similar challenge on their hands.
Successful succession planning doesn’t however just start with finding a replacement for the boss. Companies must identify possible successors and ensure their careers progress and they develop a skill set which are important to the future growth and direction of the organisation at the point at which they take over.
Succession planning should be an ongoing and continuous process and should never be driven by a crisis.
So, taking as an example the dilemma faced by News Corp, how can you ensure the smooth running of your business in the future?
- Plan early, a succession plan reflects the competency of the company directors. Whether you have shareholders to please or employees to keep motivated and focused, it is important to communicate that the company understands its strategic direction and knows how to get there and who is best to lead it. Such a succession plan should not be “in your head” but should be formally documented so that no misunderstanding can occur.
- If you run a family business, don’t assume your children are the best people, or indeed are willing, to step into your shoes. Living in the shadow of a successful parent can be daunting and running a business the way ‘they would have wanted’ isn’t necessarily the best strategy to follow. Non-family members may well be in a position to run your business more effectively. However, in such cases it is important to communicate to your children and any employees that the appointment of a non-family member is, in your or the board’s opinion, in the best interests of the business.
- Have in place an up to date shareholder agreement. If the partners or shareholders have known and worked with each other for a long time, drawing up a written Partnership or Shareholders Agreement may seem like a bit of a wasted exercise. However, partners and shareholders are usually best advised to go to the trouble and expense of entering into a formal agreement from the outset, just in case they fundamentally disagree and are unable to move forward because the business has reached deadlock.
- Don’t be afraid to turn to outside help. Sometimes all directors can benefit from a bit of outside and unbiased thinking.
Very rarely do things turn out exactly as planned. Whilst it may appear time consuming in the short term, planning for the future direction of the business, whatever its size, is vital as you never know what is around the corner.
This article is not intended to be a full summary of the law and advice should be sought on all issues.