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One of the fundamental truths about succession is that ownership transition can’t happen without leadership transition. This is especially true in the construction industry, where much of the value and goodwill of a business is tied up in its people.
Whether the owners’ succession plan is to transition to family, a third party, or employees, the future of the business (and the ability of the owner to harvest his / her value in the business) depends on having bench strength – strong leaders at all levels who are well equipped to step up when the owners, and other top leaders move on. In a transition to family or employees, the reason is clear; the founding owners and leaders need a new leader or team to take over the reins when they leave and ensure the business continues to pay out the owner if the sale is over time. But if the exit strategy is a sale to a third party, the reason is equally as important, as a critical driver of value is having in place a team of leaders who can operate and grow the business once the founder is gone. In short, businesses with strong management teams are worth more.
And the clock is ticking… the time required for planning an effective leadership and ownership transition is three to five years but demographic trends show the top levels of most organizations heavily weighted with leaders approaching retirement, reinforcing the urgency of succession planning.
Leadership transition is a two-part process: selecting the right candidate and helping that person succeed.
To select the right candidate, consider two factors:
Does the next leader(s) need to be a rainmaker, a collaborator, a strategist or a turnaround expert? The answer to this lies in identifying the challenges and opportunities facing the business over the next phase and in the vision and the plans for the business. The profile of the next leader the business needs may not be a mirror image of its current leader/ owner(s). In fact, it’s likely the new leader will require a different skill set than the founder.
For owners considering a sale to employees and or managers, identifying the qualities a leader or leaders (and possibly owners) needs to have to be considered for ownership and or leadership in their business, is a critical step. Eligibility criteria could include both quantitative (years of service, level in organization, bankability) and qualitative (contribution to growth, effective leadership and mentoring of others, standing in community) factors.
Coalescing the two factors into a leadership profile will help to crystalize thinking around the type of person the new leader needs to be and to measure candidates against.
Remember, you’re not seeking a duplicate of the founder(s). You want an individual or team who understands the business, plans, market conditions and challenges and can effectively lead the organization into the future.
An owner’s job doesn’t end when the successor or successor team has been identified. To ensure the transition works requires that the owner / founder sets up the new leader and or team for success.
An effective grooming and communication plan will help to build trust, loyalty and commitment to the new leaders, from employees, customers and other stakeholders. Depending on the size and complexity of the business, this grooming stage, while the founder is still fully engaged in the business, can take months or years. In addition to mentoring, training, and or coaching, the grooming plan should include planned milestones and end dates, as well as opportunities for potential leaders to build skills and gain experience.
And here’s the key: over the course of the selection and grooming of the new leader(s), the founder’s role must shift from that of leader and decision-maker to that of advisor and mentor. If this shift doesn’t occur, the result will be confusion, conflict, divisive internal politics and, most likely, the failure of the transition.
Leadership succession planning is a six-step process:
Cultivate a pool, rather than an individual Pick a builder, not a caretaker. Build a team, not just an individual
Best-in-class businesses develop their leadership succession plans based on finding and developing strong leaders and owners who will get the business to where it needs to go, and allow for the founders to harvest their value.
For more information on succession planning, contact Lynne Fisher, Senior Manager, ExitSmart, at 780.451.4406 or
Related Topics:ExitSMART™; TransitionSMART
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