Why Do So Many Privately Held CEO Succession Plans Fail?

This week, we’re talking about your board; how the boards’ roles are changing, their key responsibilities, and how to build your team. With so many successful baby boomer leaders moving towards retirement, it’s critical that your board is prepared to help with CEO succession planning.

I got several notes from people asking what the key responsibilities are for a privately held or family business board. For leaders who work in publicly traded companies, the challenges can be different. We will discuss them in a future blog.  Today, we focus on how the privately held board can help with key CEO succession issues.

Let me share three differences I find in privately held businesses and how you might begin to work your way through them. If you have questions I would love the opportunity to discuss them with you by phone or in person.

The first difference I find is that many times the founder hasn’t got a succession plan in place. It’s hard enough to do a succession plan at any stage of a business’s growth, but as the founder moves towards retirement, it’s especially challenging for the board to help navigate through the process. This challenge can become daunting when many of the potential successors serve on the board.  Depending on how the organization is structured, you can have both family members and investors all serving together without ever deciding who should replace the founder and why. This not helped by the fact that most of the CEOs don’t have a plan beyond their current role in the organization.

If the founder has a good beginning on a succession plan, it may be that their replacement has similar skills as the founders. As organizations grow and prosper, they may have a need for a different style of leadership than the style that started and ran the business. Change is happening so quickly that many times the markets they serve have different needs than their CEO can meet. These rapid changes can create uncertainly with their key customers as they begin going through the succession process. Many successful CEOs have built their businesses based on their unique strengths and capabilities. Many times, the CEO who is running the business is the only person the client knows within the organization.

The second difference I find is there is no formal way of deciding what skills and capabilities are needed in the CEO’s successor. Since many of these organizations don’t have a formal process or plan it’s left to the board to determine who is the best candidate for the role. Many of these board members have limited experience interviewing and evaluating potential successors.  These and a limited view into the organization’s future direction challenge the board to make a successful selection. In some cases, the board is not given the authority to help even determine who will replace the retiring or ailing CEO.

The third difference I find is that even if an organization has been successful growing, they may have a limited bench behind the key leaders on the team. When an individual is moved into their new role they don’t have the right people in place to help them run the organization moving forward. The other factor I’ve seen impact what happens after the selection is the hard feeling of the individuals who did not get the new role. Since it can seem like a popularity contest versus a formal assessment of skills and capabilities, people are more likely to tune out after the selection is made.

As a secondary factor, I have seen key individuals on the leadership team leave after the CEO selection is announced. This creates major problems for the new leader as they try to determine who is on their team and what they need to do to continue leading a successful organization.  It is critical that the board helps people understand how valuable individuals are to the organization during this transition period.

There is one more challenge the new CEO must deal with that no one wants to talk about. It’s the challenge that the retiring CEO is unclear of their role moving forward. I believe it’s critical to have a staged transition plan for your key stakeholder both inside and outside your organization. I can think of several circumstances where the former CEO was still around several years after his replacement had taken over. It is critical to have a strong transition plan and it’s even more critical to have an end date on it.

Tomorrow, Kaylene Mathews will share the right components to build a winning team. Judging by the popularity of her earlier blogs you’re going to want to be here. See here on Thursday.