Business leaders cannot keep their positions forever or firm leadership may need to change. When business law issues are addressed, firms should also engage in succession planning to adapt to change.
Succession planning defined
This is a business strategy for passing leadership roles on to other employees to ensure that the firm can continue to operate smoothly after employees leave the company. It may also involve ownership transfer to up-and-coming employees including those who are not managers or executives.
An effective succession plan is designed to assure that leadership changes are conducted smoothly and efficiently, especially if a senior manager leaves unexpectedly. The plan should include effective recruiting of qualified employees and cross-training employees to develop their skills, knowledge and understanding of the firm.
Succession planning is contingency planning. It may involve long-term planning for future changes or for addressing emergencies. However, a contingency plan should be reevaluated and updated every year to address changes in the firm or business climate.
Benefits
A formal succession plan has many advantages. These include:
- Provides employees with an opportunity for advancement and maybe ownership which can lead to better performance and increased satisfaction.
- Improves career development.
- Encourages mentoring of employees.
- More opportunities for internal promotion and advancement.
- A new generation of leaders can assume positions if there are widespread requirements.
- Reassures investors in publicly traded companies that competent management can take over in emergencies.
- Provides an opportunity for diversity.
Common mistakes
Succession planning requires serious organization and communication. But companies often commit these errors:
- Not adopting a formal agreement or plan.
- Failing to have a shortlist of candidates to fill senior positions.
- Not conducting ongoing performance reviews of employees eligible for promotion.
- Failure to use succession plans for all employees.
- Failure to diversify the pool of employees who can fill senior positions.
A succession plan may be part of other important legal documents and plans needed by business. Ongoing legal advice may be a business asset.