Since the beginning of 2006, 7918 Baby Boomers reach the age of 60 every day in the United States and are eligible for retirement. In Canada, 5000 baby boomers are eligible every week. In fact, 76 million Boomers will retire and there are only 46 million GenXers to replace them. The Boomers’ retirements represent 40% of the current workforce. It is very expensive to replace people externally. Aside from the recruiting costs, there is lost productivity during the position/culture learning curve. Replacing a senior leader can cost two to four times his/her annual salary.
Succession plans are another form of risk management. A succession plan should accompany the company’s business plan. But few CHRO’s, executives, and business owners, consider succession until they are reaching retirement age or decide that they want to leave the business.
There are two aspects to succession – voluntary and involuntary – and while it essential to have a plan for both, involuntary succession can cause the most chaos and issues and really argues the need for a plan. Involuntary succession occurs when the proverbial bus comes along and suddenly the owner, partner or key leader is unable to work or worse, is deceased. Voluntary succession occurs when a business owner, partner or senior manager decides to retire or leave the business.
Most business consultants, estate planners or lawyers, will tell you that part of your succession plan is knowing or determining the value of your business. They see this as necessary whether one partner is stepping down or if the owner plans to sell the business. And when looking at the value of the business, they fail to consider many aspects which add or subtract from the value. They think about the clients and the amount of revenue and income the business generates. The value of equipment and supplies are also factored in. However, many other features contribute to the salability of the practice.
Features such as employee records, job descriptions, performance reviews, EEO and unemployment claims, employee and customer retention, consistent hiring practices, employment taxes, to name just a few, affect the value of the business to a potential buyer.
A true succession plan is much more than just the value of the business even with the features above taken care of and in compliance.
There should be two plans – the emergency plan for involuntary succession and the long-term plan for voluntary succession. Like the business plan, the succession plan should be updated at least every five years or as people and operations change. It should cover the following:
- A communication plan for informing staff and clients/customers
- A plan for replacement of retiring management – bringing in people from outside or promoting from within
- Clear job descriptions for all key roles
- Description of the daily operations of the office/s, locations
- Descriptions of business procedures
- Mentoring by the departing leader of the replacement
- Cross training
- Centrally recorded business contacts of the departing leader to maintain important relationships
- Regular evaluation of office / business policies and procedures
- Involvement of younger management in committees and decision making to determine how well they would do in leadership roles
- A plan for key leadership knowledge capture
Benefits of a Robust Succession Plan:
- Assesses present and future organizational needs
- Improves retention
- Identifies valuable training goals
- Increases preparation for leadership
- Improves employee satisfaction and morale
- Enhances commitment to work and the workplace
- Enhances the organization’s image
- Realizes savings in cost and time of external personnel searches.
- Makes the business more valuable
For business owners or family owned businesses, succession planning can be finding and/or grooming a suitable replacement as you plan to leave, preparing the organization for the transition and setting your replacement up for success with mentoring and onboarding. Succession planning makes a business more valuable both to potential employees, investors and potential buyers and it helps the business retain its top talent, one of the business’ key assets. For large corporations, succession planning makes the organization an employer of choice as people see that there are opportunities for them to move up in the business.
80% of a business’ assets walk out the door every night. By adding a component of knowledge capture to the succession plan, the company retains the knowledge of those retiring or leaving the company. Ideally, creating a culture where all employees record / capture their knowledge as a component of their responsibilities, retains these assets, makes them available to an employee who was to move up or change positions and greatly increases the value of the company.
Succession Planning – Sample Prompta Client Results
Championed a program to address the most pressing priority of a major health-care service provider, identifying emerging senior leaders in the organization and accelerating their readiness for executive roles. All graduates of the first program have been promoted.
Designed the succession planning program for a major New Mexico county including management training, a selection guide, mentoring guide, mentee guide with knowledge capture training and facilitated leader sessions to customize depart-mental programs.
For a global technology company, developed a New Recruit “Fast Track” program with a new approach to orientation, a guide for learning, work experience rotations and leader and peer mentoring to develop new high talent recruits at an accelerated pace for leadership roles.