In our recent article, “Warren Buffet, Mortality, and the Importance of Succession Planning,” we discussed a few aging, high-powered CEOs at publicly traded companies, and the challenge of finding their successors. Two of these stories highlight an interesting challenge when it comes to replacing certain chief executives – sometimes it takes more than one person to replace the skill set, experience, expertise – and even charisma – of the outgoing leader.
We also see this problem frequently with smaller, privately held businesses. Often, the founder and long-standing CEO is a pillar in their business and social communities – they’re seemingly irreplaceable! In order to ensure business continuity, someone has to take over the reins. But it can’t be just anyone and it may require more than one person to fill the outgoing leader’s big shoes – not an easy task.
Let’s look at some of the ways that businesses can successfully navigate this succession challenge and move into the future.
Management Succession is Critical
True succession requires a focus on management succession – identifying and cultivating the skills required to run the company.
In a recent blog post for The Family Business Institute, Wayne Rivers discusses this often overlooked, critical component of succession planning.
- Who cares what the future ownership of the company looks like if no one has addressed the management succession of the company and determined who's going to run the business?
- Who is going to do the thankless, countless tasks that it takes to keep a family business operating profitably?
- If the business isn't well managed or profitable after the senior generation departs, everyone will lose in the long-term.
By not addressing these critical issues, Rivers adds, the financial security of the outgoing generation may be in danger. If you don't focus on succession management, the senior generation won’t be able to enjoy the very security they're looking for in retirement, and, the junior generation and the business will fail.
Family Members Might Not Be the Best Replacements
Succession, especially in family businesses, is often seen as choosing a person and transferring business ownership, and it’s often assumed the chosen person will be a child or another family member.
But it’s much more than just a legal change in ownership or transfer of wealth.
Buffett’s sentiment in a recent letter to shareholders encapsulates how owners should choose and groom their potential successors: “You and I are lucky to have Ajit and Greg working for us. Each has been with Berkshire for decades, and Berkshire’s blood flows through their veins. The character of each man matches his talents. And that says it all.”
The reality is that family members may not be the best choice as successors; there may be more qualified individuals already in the company.
It May Take More Than One Person
Warren Buffett has said that his responsibilities will be split into more than one position when he departs. His son Howard will be chairman. Todd Combs and Ted Weschler will be the chief stock pickers. And, in January, Berkshire Hathaway announced that Greg Abel and Ajit Jain will act as vice chairmen, jointly overseeing the day-to-day operations of the company, which signals that one of them may be chosen as CEO once Buffett leaves. That’s effectively five people who are taking over the seemingly boundless roles and responsibilities of one man.
It’s clear that Buffett and the company have been planning for his succession (and evolving those plans) for at least a decade or more. It’s fundamental to assuring shareholders that the company will remain in capable hands when he is no longer at the helm, thereby maintaining company value, and ensuring the future of the empire Buffett built. He and his executive team understand the importance of putting such a plan in place, grooming the next-generation of leaders to take over, and ultimately determining who will be the next CEO. But again, the transition of responsibilities may require not just one replacement, but several people to cover all of that person’s skills, knowledge and know-how.
Some Final Thoughts
Successful business succession requires a whole lot more than a piece of paper transferring title; it requires a focus on management succession. Careful thought, planning and time are needed in order to select the most appropriate successor(s).
And to eventually succeed in the new role, the successor(s) will require hands-on mentoring and training in order to achieve a smooth, cohesive transition, which when executed effectively, will benefit the company for many years to come.