Most succession plans focus simply on ensuring someone else can step into the shoes of a key person, if they are suddenly lost to the business. But I recommend having other strategies in place, to not just replace the key person and their skills, but to be able to:
- Replace or retrieve their knowledge;
- Restore the relationships they had with customers, suppliers, etc.
The risks associated with losing a key person in the business, are much easier to manage before the event, as opposed to once they’ve gone. So being proactive is critical, and the sooner you start the better, (but because this task can be deferred, too many business owners put it off indefinitely).
The highest priority for succession planning should be afforded to key persons whose skills are difficult to replace, and whose role is critical to the business. With low or semi-skilled frontline employees, it might take the business weeks to replace them. But with a highly-skilled technician, it might take months or years to replace them. Losing key executives, particularly founders, can be devastating for a business. Their expertise is usually rare and highly sought-after. These people are often seen as the face of the business, so if they disappear, it causes a major disruption to the business.
Imagine the disruption that would be caused to a television company, if their star presenter was taken ill or died. Or the problems a small-town hospital would have replacing a highly-skilled surgeon.
The starting point is to identify all critical roles in the business. These roles can be prioritised by answering these two questions:
- What impact would it have if this key person suddenly left the business?
- What is the likelihood of losing them? A senior employee nearing retirement is more likely to leave, than someone who recently bought a share of the business.
Identify up-and-comers early; within the business if possible, and groom them to be able to step into the key person’s role immediately, if required. You will need to set aside time within both person’s current workloads. If you simply expect them to add it to their already-packed schedule, you might find they never find the time to get around to transferring the knowledge and skills.
One of the most common and avoidable risks, occur when employees retain valuable knowledge in their heads, without documenting it. If they leave or die suddenly, all this information is lost. It could be extremely difficult, if not impossible, to retrieve this information quickly. Smart business owners ensure this information is written down, documented in policies and procedures, and/or passed on to other employees.
When a key person leaves a business, there is a risk of customers taking their business elsewhere. This is especially true of businesses where the trust between the customer and the key person is high, e.g. professional advisors such as lawyers or accountants, or very personal relationships such as a doctor and patient. So, introduce the protégé to the key person’s important customers, and do this over time. Wherever possible, get the protégé involved in projects for these important customers.
Insurance should be part of your risk mitigation plan. Key Person Insurance (previously called “Key Man Insurance), covers a business if a key employee or officer is taken out by illness, disability or death.
The benefits under the policy are paid to the business, not the employee or their estate, to help cover the costs associated with:
- finding a replacement;
- training a replacement;
- loss of revenue, caused by the loss of the employee.
If this strategy could help your business, speak with a good insurance advisor about it. In my business, I help my clients ensure they have a risk mitigation plan, for succession planning for key roles.
In our next newsletter we will discuss the second type of succession planning, Planning for a change of ownership of business, (succession planning for the business).