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Succession planning: the Godfather of all decisions

“There just wasn’t enough time.” Who would have guessed that this classic quote from Marlon Brando in the Godfather trilogy would be echoing through many boardrooms today?

“There just wasn’t enough time.” Who would have guessed that this classic quote from Marlon Brando in the Godfather trilogy would be echoing through many boardrooms today? Especially from those wishing they’d started the succession journey earlier. Hopefully their businesses don’t end up ‘sleeping with the fishes.’

Aaron Wallace of Hayes KnightPerhaps a higher value and a smoother transition could have been achieved if their exit was better planned and proactive steps were taken at the outset.

Baby boomers are getting older and health concerns are starting to plague the initial timeframes laid down by owners of all ages. For many, the luxury of time is a limited resource. Hands are getting forced and for some they’ve simply run out of time to groom their businesses, or even their successors, for a sale on their terms.

As business advisers, we’re witnessing a rise in the demand for stronger governance and the formation of advisory boards to lead a business to a more secure and profitable trading platform, whilst building longer term financial sustainability to ultimately create a more attractive proposition for tomorrow’s owner.

There has been a shift towards engaging independent skill sets onto a management board to lend valuable input to the organisation’s steering committee. Some think of this as a combination of ‘growing up and coming of age’ that is being employed by many of our leading enterprises as they take a corporate trailblazing role. In the process of asking the big questions, inevitably succession matters come to the fore.

Continuing the analogy, episodes of TV series like The Sopranos, Sons of Anarchy and Underbelly highlight the need for a successful leadership team in what are fictitious businesses.

In a somewhat comical and even ironic way, these storylines emphasise the need for collective management to get a more powerful outcome. Not surprisingly, key characters want to be part of succession planning.

What we can take from this is that planning should always be at the forefront of an executive’s mind and that there should be people available to lead an organisation should there be an unplanned exit of a key person. What would happen to your business if you had a serious illness tomorrow and had to quit immediately? Would it operate as profitably long-term, would it command the price you demand with minimal effort, or would your estate be left with some severe issues to work through?

Hesitation by an owner to act on the finer details of a succession plan is adversely affecting a successful transfer opportunity. Reluctance by a working owner to surround themselves with an independent board that consciously pushes their comfort zone and demands change is adversely affecting shareholder value and annual take home profit.

It’s time for SMEs to get on board with the governance and succession programme. This is a realisation many mature executives have already discovered and a lesson tomorrow’s leaders have recently learned.

We’re certainly seeing a difference in results between those businesses that practise this discipline and those that don’t. Sure, succession’s just part of the mix in a governance programme, but dealing with the issue before you need to is about creating choices and doors of possibility. Unplanned amalgamations or takeovers/buyouts because a more attractive business model has been created mean the exit process can be fast-tracked.

Think of it this way: The final paper in a practical lifetime business degree is Succession 101. Planning the succession process is semester one and taking action is semester two. Welcoming an advisory board could be part of the course materials. Doing nothing and hoping for a compassionate pass is like a ‘did not sit’ or fail. Just like a business degree, you have to turn up to have any chance of success. If steps are taken, there will be enough time and the chance of a successful exit will be dramatically increased. In Godfather terms, “the family will be looked after”.

That allows for a happy ending.

Aaron Wallace is business improvement director at Hayes Knight.

Originally published in Succeed, issue six