Succession planning focuses on implementing a process with the goal of keeping talent in the pipeline. This process typically involves between 12 and 36 months of preparation, which in this case, is not the same as pre-selection.
According to Jim Rea, leader of MNP’s ExitSMART™ Succession Services team in Calgary, many companies had put their succession plans on the backburner. Now, COVID-19 has alerted them to the fact that they are unprepared and have not put adequate thought into whether they should be considering carrying on or bowing out of lead roles.
He says, “The COVID-19 pandemic brought home the importance of being prepared for the unexpected. No one knows when the next personal or worldwide crisis will occur. Thoughtful planning can help small businesses and entrepreneurs prepare for an uncertain future.”
Rea adds that the pandemic has served as a wake-up call for many business owners. “For good or bad, the pandemic is definitely bringing succession into the spotlight.”
Glenda Reynolds, Haskayne School of Business director at the Canadian Centre for Advanced Leadership, echoes Rea’s comments and says, “COVID-19 has caused many people to re-evaluate what is important to them – things like how they want to spend their time and how important their health is to them. They are also evaluating the possible impact of COVID-19 illness, their experience at work and how they are being treated by their organization. Then they are deciding if it is worth investing more or less time with an organization.”
She explains that some people have made the decision to retire early and leave organizational and work life altogether to focus on a new chapter in their lives. While this may be the case for some, Reynolds explains, “Others who still want to work are looking for a connection with companies that allows them flexibility and a better connection with what is important to them. They are looking for leaders who understand how to provide a strong value proposition to employees. Those nearing retirement are looking to see how they can contribute meaningfully, be valued for their knowledge and mentoring ability, and to engage in learning opportunities in things like new technologies.”
“When leaders realize, as the research shows, that productivity remains high with remote working arrangements, organizations can create new employee value propositions for continuing to work for a company beyond traditional retirement age,” says Reynolds. “These arrangements can benefit both employees and organizations and potentially curb early retirements.”
Real HR president Eleanor Culver says that while their clients’ experiences over the last two years have been somewhat painful, the pandemic has been a positive lesson in succession planning. “Succession planning is woefully absent in the vast majority of small to medium-sized Calgary companies; during the pandemic, survival and short-term goals took precedence over longer-term planning for businesses. Random ad hoc employee absences, lockdowns and continually changing restrictions for businesses have highlighted the need to have a succession plan and adequate cross-training. These are the first steps of developing a practical succession plan.”
Interestingly, Rea points out that businesses that have altered their operations to cope or even thrive through the pandemic have increased their values, making transfer or sale more appealing for the owner, and often speeding up the succession process. He gives the example of a client who decided to move forward on a complete sale to family due to COVID-19. “One of our clients had some pre-existing health conditions and decided that, rather than wait and transact over a period of three to five years, they would exit right away. COVID-19 flattened out job opportunities for their son-in-law, so the plan was made to transition him into leadership more quickly.”
“The abundance of ready capital and low interest rates have created increased demand for investment in businesses,” says Rea, “whether that means outright sale to a purchaser or participation of a third-party in a strategic partnership. MNP’s chartered business valuators are increasingly called upon to help determine the values of businesses given the additional challenge of adjusting for non-recurring financial impacts, whether they be positive (unusual demand for products or services, government subsidies, or cost savings) or negative (lost sales due to unanticipated closures, capacity restrictions, etc.).”
“Many of our professional clients have been triggered to pull back from the whirlwind of their practices and to think about the bigger picture as a result of having witnessed some of the difficulties that their colleagues (in similar or other professions) have experienced. Spending increased time with family has caused some to re-examine what their most important values are,” explains Rea.
The last two years have triggered a couple of things, says Reynolds. First, companies are starting to establish and implement ‘emergency succession planning protocols’ (typically seen more for natural disaster types of disruptions), particularly at the executive levels and in key business areas.
“Executives may be exiting unexpectedly either due to unexpected health problems that could arise because of COVID-19, or because of lifestyle choices. These ‘emergency protocols’ are being developed because of potential talent shortages, both in leadership where longer succession planning is typically used and in technical areas. These types of protocols have not usually been a priority for organizations. More traditional forms of succession planning with longer time horizons have typically been the norm but now COVID has provided a sense of urgency as organizations can foresee that there may not be time for knowledge transfer, mentoring or leadership development to take place.”
Second is the focus on the importance of succession planning and leadership capability. “Succession planning is often considered a longer-term exercise and is therefore sometimes superseded by more immediate business needs. Organizations need to examine their current value proposition for their existing leaders to encourage strong succession. At the same time, organizations need to provide more support to leaders to help prevent or manage the implications of ‘The Great Resignation’ that is happening now.”
“Organizations that pay attention to their existing talent and renew their employee value proposition may be able to keep and even rapidly grow their succession ability,” says Reynolds. “Organizations that adopt succession approaches that involve leadership development across all levels in their company will decrease their risk of succession issues, increase their ability to recognize the potential of their current talent as well as understand how to retain that talent. Leaders who connect employees with a larger purpose both personally and at an organizational level, while building in flexibility, will come out ahead of leaders and organizations focused on mitigating risk and driving productivity.”
There is no arguing that COVID-19 has caused companies to accelerate, or in some cases begin, its succession planning preparation. Culver points out that while there is no mandatory retirement age in Alberta, “employees and employers need to have frank conversations about the future and engage in creative problem-solving.
“Whether they have experienced COVID-19 firsthand, or have had relatives or friends hospitalized, business owners realize that anything can happen, and they are not going to able to lead their organization forever, so they’d better get some emergency planning done, including deciding on their successors,” says Rea.