It is Never Forever

Posted on July 6, 2006

What would happen to your company if you disappeared tomorrow? Tom Friel, CEO of Heidrich and Struggles, sparked a great discussion about succession at a meeting of the Alliance of Chief Executives.

It’s such a waste that we can’t know the date we’ll die.  So many things would be simplified if we did, especially succession planning.  We could do it right on time!

But alas, we don’t know when we’ll meet our maker.  Tom Friel, CEO of Heidrich and Struggles, spoke at the December 16th meeting of the Alliance of Chief Executives.  What came clear to me as I listened is that succession planning is not much different than building a great top team that allows the CEO to focus on the long term.  After all, a CEO that can be easily replaced is free – free to enjoy life, free to grow the business and free to break new ground.

Mr. Friel runs the world’s largest executive search firm, with 1,500 people, 7 offices in 35 countries.  They went public in 1999 and boast annual sales of $400 million.  If you die, become disabled, get fired, or want to retire from a top job at a big firm, he hopes your board will hire him to replace you.

In fact, we CEOs had a great discussion with him about succession at GE as Jack Welch departed.  Heidrich and Struggles was heavily involved placing the three GE execs that “lost” the competition.  But my mind was stuck on the succession challenges of “little” firms with less than $250 million in revenues.

Be Replaceable

As I see it, the real goal of a CEO is to have sufficient talent around him at all times so that he/she is easily replaced.  Why?

1. If you suddenly die, the business continues – for the benefit of your estate, or the stockholders and other stakeholders.
2. If you are disabled, you won’t have to watch helplessly as your baby self-destructs.
3. If you choose to sell and move on, you’ll be able to do it sooner rather than later, and the business will be worth more too.
4. If a great new opportunity or threat arises, you’ll be able to bring in someone to do your daily duties, freeing you to tackle the new opportunity or threat.  Of course, if you’re $15 million in revenues or larger, hopefully you already have a top team strong enough that allows you to do this as part of your daily duties.

But Could You Get Dumped?

If you’re a hired CEO, and you’re not needed for the business to run well, won’t they fire you?  Well, they could, but they won’t kill you – you’ll be free to find a new opportunity.  Mr. Friel tells us that good CEOs are in short supply, thankfully.  Realistically, though, being “not needed” means that you can focus on the future, on growth, and on strategy.  Any board you’d want to work for would value this, and recognize that you are playing a critical role.  If you really believe you are a good leader, you’ll have the confidence that you can add value in many companies – not just the firm you lead today.

If you’re an entrepreneur, and you get talent good enough to run your show for you, then let them run it and move on to new businesses.  You’re not a product of the business you’re in now.  You’re a product of all the businesses you’ll ever start and run.  Why stay trapped?

Can’t Afford a Quality Successor?

If your firm is so small that you can’t afford a quality successor, what can you do?  While I don’t disagree with Mr. Friel’s comment about staying healthy so you don’t die prematurely, there is more to think about.  First, if your business is really a lifestyle business, whose sole purpose is to give you a job and/or nice income, don’t worry about it.  When you die, you’ll be dead, and so will your business.  No lasting value to worry about.  Second, if your business is struggling so badly that without your intense labor (for too little compensation) it would fold up and crumble, then there is no lasting value in the business itself , and no need to try and have it continue without you.

But if the small business has intrinsic value, there are some stop-gap measures you can take:

1. Have a caretaker at the ready who could step in the short term and orchestrate the process of finding the successor after your demise.  Make sure your salary will be free to fund the new leader (insurance, estate planning).  This could be a semi-retired consultant, a spouse, or a trusted employee.
2. Have a buyer or two in the wings who would pay reasonable value for your business if you were gone.  Keep your business in a sellable state (always a good idea), and leave instructions for those you leave behind about how to pursue the sale of the business.
3. Have your team be capable of running the day to day business for up to a month without needing you.  Maybe it won’t run as well, but if they can keep it from crashing for a month, there is a chance that can manage for much longer.  It’ll give you time to recover from your stroke, or give a caretaker the time to figure out what to do next.

A few key comments from Mr. Friel:

1. You should have a formal succession plan, in writing, presented to the board each year.  It should include a “doomsday letter,” with your instructions about your replacement, an org chart, and a three year plan.
2. Succession planning is an important part of every CEO’s duties.  If you’re not doing it, you’re not doing your job.
3. Not very many people actually want the job of CEO.  Don’t assume someone will want the job – talk to your top team about their interest in being CEO someday to confirm their interest.