The Panel

Future-proofing your business: How to plan for a successful succession

Succession planning is an important aspect of your business’s long-term success, writes Paul McArdle. Like everything, the solution has to be tailored to your business’s specific requirements. 

I recently had an interesting recruitment assignment. My client was looking to hire a candidate for a role and also to have that candidate be part of a future succession plan. As a recruiter, you are, in effect, recruiting for two roles: the role that needs to be done now and the role that needs to be done in the future.

Finding an individual who can do the role as per the job specification is easier, and soon, we hit a speed bump. Two of the candidates were ideal for the here and now, but their scalability to go to the next levels was deemed limited; they were not “succession planning” material. The other candidate was ideal for the future, had a high ceiling to their growth and was hugely capable. The issue with that candidate is that they would quickly get bored with the job as it is, and their pace of development would outstrip the proposed succession timeline.

In summary, as a recruiter, I delivered two people who could do the role on the job specification and one who could be a succession plan, but the timing was way off. This was frustrating for me and frustrating for the client.

We sat back and looked at what was best for the client and concluded that, in parallel with my continuing to source, there was a pressing need for the next two years to do the role as is. The immediate priorities involved scaling a finance function, hiring the right team, developing their financial systems, and producing timely and accurate management information to run the business better.

Some candidates excel at the role as defined today but do not have the ability to make it to the Finance Director level (FD). And here is the rub: FD designates prefer the “sexier” stuff to do as opposed to ensuring the coding of invoices is captured properly on their finance systems.

To complicate the recruitment process further, we did find a candidate who was happy to do the former aspects of the role and could also deliver the FD duties to a high level. That candidate happened to be older than the hiring manager, so purely on the grounds that succession was not a viable option (the candidate would have been close to retirement when the proposed succession plan was to be activated), my client reluctantly dismissed that option. (Grey is always a good option to look at BTW.)

Ultimately, the client hired the person for the here-and-now. Of the two candidates I presented, the differentiator was that they hired the candidate with the highest ceiling, hoping they could groom them for the more significant role in time but accepting that they may need to go to the market again in a couple of years.

Keeping valued staff

Succession planning is essential if you want to retain or attract talent to your business. Giving an employee or candidate a career roadmap makes you more attractive as an employer, which is a good thing.

You can also plan for your employees’ next steps, give them more responsibility and coaching over time, and have a material influence on setting them up for success. As an employer, you are also managing risk. A happy employee is less likely to jump ship with the company secrets. Your clients get a continuation of service, so they are more likely to stay with you, too, and you can plan for the future with more certainty, again managing risk better.

Promoting from within is also a compelling statement of intent and is positive for all employees who can see career opportunities opening up for them. It can also be more cost-effective in the long run, coaching your employees the way you want without the cost of bringing in external talent, talent that needs to be educated on how you work, company culture, etc.

The downsides to succession planning also need to be considered. I am advising a client who has a sticky issue. They are looking for a Chief Financial Officer (CFO), and their Head of Finance is pushing for the position. The business is looking to scale via acquisition, and the owner is certain their Head of Finance cannot do that aspect of the role. Managing your employee’s expectations, particularly in a scenario like this, is tricky and needs to be navigated appropriately.

I have encountered this scenario many times before. Often, the client does not want to lose the incumbent and has a strong sense of loyalty to them. The incumbent also has a lot of “corporate memory,” something the owner does not want to walk out the door.

I advised the client to conduct an external recruitment search for a CFO and invite the incumbent to apply. The message to the incumbent was that the board rated them highly, but as the appointment was key to the future success of the business, the owner was advised to have an independent process done, and they were keen that the incumbent would participate in the process.

The importance of a fair process

This has worked well in previous assignments. One of the critical things I needed to deliver as a recruiter was that if the client did appoint an external candidate, there was significant “daylight” between that candidate’s ability and the incumbents. If the incumbent sees this, and the new CFO appointment is framed as actually being better for the incumbent’s career development, it can work well.

I have had scenarios where the incumbent just wants to be valued and appropriately treated. They are happy if they feel the recruitment process is fair and transparent. They can often see the “daylight” between them and the new CFO and accept that the appointment is best for them and the business. Sometimes, but far less than you may expect, they get the “hump” and leave.

In all the processes I have run like this, I treat the incumbent as an external candidate, work with them on their CV, prepare them for interview, and update them on progress. Once they feel they are taken seriously, it really helps everyone. On a couple of occasions, we have advised that the incumbent gets the role and recommend a coaching plan to fill the gaps. 

For the client looking to scale via acquisition, we highlighted that the integration of any acquisition played to the incumbents’ strengths (and is essential to the business) and that they outsource the acquisition piece to a corporate finance service provider. This solution is working well, and everyone is happy.

Keeping the door open

Change is a constant in business, so this is another factor in succession planning you need to be aware of. What if the person you have earmarked to be your successor does not have the skills/experience to lead the business in its current environment? If your business needs to do things differently in your market, is it better to get the more relevant experience externally?

There was a fascinating chat on Newstalk about Leo Cullen, the Leinster coach, after the recent Champions Cup defeat. Cullen is unusual in that he recruits support staff who are viable challengers to his position, Stuart Lancaster being an obvious example. In fairness to Cullen, he is bringing in fresh ideas to keep Leinster relevant, and often, those fresh perspectives are found externally.

I recently heard another interesting chat about the All Blacks and how they constantly grew their own coaches. Over time, other nations were closing the gap on them. This gap closing was attributed to the All-Blacks’ ideas being delivered insularly; they only worked with their own coaching pool. Other rugby nations were more cosmopolitan in their outlook and open to fresh external perspectives. I am not writing off the All Blacks by any means, but this argument has some merit: external talent and fresh ideas can keep an organisation relevant. 

When something is very successful, like the All Blacks, resistance to change can grow. “If it’s not broken…” Organisations that grew by being innovative find themselves becoming more conservative by protecting what they have built, and they end up losing the magic that made them successful in the first place. That is why external talent should at least be in the conversation when you are succession planning.

Avoiding unnecessary tensions

Another downside to succession planning is internal politics, which involves people jockeying for position. While not quite at “Succession” levels, this can be very distracting to a business, particularly if people concentrate on themselves rather than the business. 

In a very high-profile role, a friend of mine read the tea leaves in his company and knew he was getting a long no for the top job. So, he concentrated on being a good leaver, and agreed a settlement that made life easier for all parties. His life is now more straightforward, his stress levels are way down, and he is excited about the future. 

If you have a designated successor, it is important to set them up for success. Expose them to different aspects of your business, mentor them, give them more responsibility, consider external coaching, etc. 

Succession planning is an important aspect of your business’s long-term success. Like everything, the solution has to be tailored to your specific requirements. Sometimes, that solution can be obvious, and other times, it can be challenging to choose the right option. It is good to be aware of the different scenarios and plan accordingly; your succession’s success depends upon it.

Paul McArdle is the Joint Managing Partner of The Panel and a columnist for The Currency, writing about talent and recruitment. He recruits across the “C” suite level.