Is it worth the risk? Many employers lack succession plans

One in four (27%) Australian businesses do not have a succession plan in place, according to a recent survey by Robert Half Talent Solutions.

So why the reluctance to prepare? It is often viewed as a lower priority compared to other day-to-day responsibilities (42% of respondents) while 49% say “not planning to leave in the near future” is a top reason for not having a succession plan.

But that’s risky, says one legal expert.

“The departure of a key person can have an imminent effect on the operation and continued revenue of a business. It is important for business owners to put in place general strategies, as well as effective plans to ensure that those risks are mitigated and that the business can continue to operate despite the departure of any key people,” said Danny Adno, partner at the Sydney office of Holman Webb Lawyers.

Planning for the future

COVID-19 has taught many business owners to prepare for unexpected risks, he said.

“An effective business succession plan takes into account the likely risks to the continuity of the business should an owner or other key people depart the business through illness, accident or death.

“Having an effective business succession plan is also a good way for a business to reassess its structure to ensure that it is operating effectively, taking into consideration the tax effectiveness of the business; asset protection – business and stakeholders; and future-proofing the business.”

Lack of planning

It is essential to identify and train successors for roles at all organisational levels, however, 23% of business leaders don’t have a succession plan in place for executive/senior-level talent and 40% don’t have a succession plan in place for junior to mid-level roles, according to Robert Half.

“There are numerous reasons why a business owner may not prepare for business succession,” Adno added. “Time is often a major factor, with people wanting to focus on present and short-term issues, rather than future events. Unfortunately, the succession planning often gets pushed aside until it is too late.”

Handing control over to someone else is never easy, he says.

“This is true in life and perhaps even more so in business. Whether it be ownership, management or another role, it is important that business owners learn to not only ‘let go’ when necessary, but to ensure that there’s someone with the right knowledge and skills, ready, willing and able to step up, if and when the time comes.”

Companies everywhere are concerned about having a reliable successor for the CEO but plans for other seats around the executive table seem a little murky – including for the CHRO, according to a recent separate study.

Looking for successors

It is important to consider a wide variety of candidates when it comes to succession planning as there may be more suitable talent in the broader employment market.

“A business needs to take into account the existing employees and whether any of them are suitable to take over, as well as considerations around business exit in the succession plan,” Lawrence Petruzzelli, business development manager at MDB Taxation and Business Advisors, said.

“A business exit could be a management buyout or for the business to eventually be sold/merged with external businesses.”

The Robert Half Survey revealed the top traits looked for in a potential successor:

• technical expertise (42%)
• people management skills (40%)
• shared values (32%)
• company vision for the future (31%)
• internal company knowledge (30%

“Succession planning can be considered in two parts: ownership succession and management succession,” Adno said. “While the right person for each of these roles may indeed be the same, it’s equally likely that they won’t be – and it is important that your business’ planning reflects this.”

Succession planning is also an effective tool to prepare an employer for a transactional event like a capital raise or the sale/purchase of the business or a stake of the business. 

“To ensure the maximum value in the business, business owners should map out who and what is required in order for the business’ future plans to be realised… a succession plan ensures that you have the right processes and people in place, at the right time.”

Training for the future

Training is important as not everyone has the same skillset. There will also be intricacies of the business that someone within the firm may not have been exposed to yet so they will need to be familiar with every aspect of the company.

“Any business should always have training in place to upskill and develop their employees, otherwise, employees will seek new opportunities,” Petruzzelli said.

“[It’s about] increasing the level of responsibilities as an employee develops on the job, whilst maintaining regular internal and external training. As this is done, the ownership team will also be able to clearly see who has the skills and the requirements to eventually be capable, happy and able to run the operations.”

Employers and employees aren't seeing eye-to-eye when it comes to learning and development, according to a new report, prompting calls to employers to step up their upskilling efforts to fill workforce gaps.