succession_keys

When Apple CEO Steve Jobs passed away in 2011, investors mourned the loss of one of the tech industry’s greatest innovators. Jobs was one of a kind, which left many asking who would—or could—succeed the man who introduced some of the world’s most popular consumer electronic devices.

But for Apple, the answer to that question was never in doubt since it had a clear succession plan in place: When Jobs passed Tim Cook, would take the reins. The transition was smooth and critics were slowly silenced as Apple continued to post record profits. In this case, Cook has proven himself to be the right cultural and operational fit for the company. Now, Apple is very much Tim Cook’s company.

MORE TIM COOK: Being Boring is Apple’s Latest and Most Profitable Invention »

Whether you are running a multinational like Apple or a business that’s slightly more modest, having a succession plan in place is crucial, and it hinges on selecting and developing the right person for the job. As an accountant I work with a number of entrepreneurs, and succession planning is never top of mind. Most want to focus on building and growing their company, not preparing an exit strategy.

Many entrepreneurs will assume a son, daughter or key employee has the acumen to take the reins simply because they want to, show some business ambition or, in some cases, are expected to take over. But choosing a successor can be a complex, time-consuming process that requires more than simply looking at the people around you. It involves careful analysis of a potential successor’s skill set, personality and career aspirations.

MORE HEIRS: What Happens When Kids Take Over the Family Business »

Most entrepreneurs have an array of succession options at their disposal. Selling the business, for example, is always a better approach than simply passing the torch to a new CEO who may not want the job, or lacks the know-how to be successful. That’s especially important when the outgoing owner might hold an ongoing financial interest in the business and effectively becomes a silent partner once the succession plan is deployed. At that point, his or her financial future rests in the hands of the person who takes the helm—a risk that only underscores the need to find the right manager for the organization, which is a very different consideration than simply finding the most tax-efficient way to transfer ownership.

Without exception, it pays to take a strategic approach to choosing and grooming a business successor. Here are three steps to keep in mind when handpicking your next leader:

Know what you need

Building a leadership profile is an important first step in this process. Identify the leadership qualities you want to see in your ideal candidate as well as what sort of operational abilities you think are needed for the role. Once you have those points defined, start preparing a short list of potential candidates who best meet those traits and then decide if they have the vision to grow the business. Remember, your search for a successor could force you to look outside the organization. Wherever you find those candidates, you’ll need to develop an objective scorecard to assess their skills and other key attributes such as cultural fit and ability to engage, motivate and lead your existing staff.

It’s important to note that this can be an emotional process, especially if your crop of successor candidates includes family members. That’s why it makes sense to assemble an objective panel to help advise on the final decision—possibly consisting of other entrepreneurs or trusted advisors, such as a lawyer. The end goal is to act in the best interest of the business, not any one individual.

Communicate with existing employees

Assuming you don’t opt for a sale of your business or that the succession process isn’t spurred by your demise, you’ll want to secure the support of your existing employees once the plan is deployed and the search for a successor begins. Explain the plan in detail to your staff and provide a timeline as to when their new boss might assume control of the business. Reinforce the message that, especially if family members are involved, the search will be conducted in an objective manner. If you’re not willing to consider current employees, be prepared to explain why.

Remember that communication not only helps manage employee expectations and smooths potentially hurt feelings, but can also stem potential staff turnover if they feel the process isn’t being managed properly or fear the selection of a new CEO for whom they might not want to work.

Ease your successor into the job

Whether recruited from inside the business, another company or even another industry, your successor will need to be properly trained for their new role. That typically involves the preparation of a management development plan to get them up to speed and fill any gaps in the new leader’s operational skills and experience. Quite often, outgoing CEOs will provide their successors with some form of on-the-job training if they’ve come from outside the organization. I typically recommend assigning the successor a coach or team of mentors to help them through the transition phase, which could include the business owner, long-serving employees who understand the organization’s operational needs, or even other entrepreneurs who can answer some of the questions that inevitably arise when assuming control of a business.

Then be patient. Budgeting a week for your successor to take the reins and get up to speed on running the organization is unrealistic. This is a process that could take up to a year, possibly more, so make yourself available—at least in an advisory role—during that period and slowly phase out your involvement. The goal is to support your successor and ensure they have the tools necessary to do your old job.

Armando Iannuzzi is a tax partner at Kestenberg Rabinowicz Partners LLP, a Markham, Ont.-based firm that provides strategic tax, accounting and finance services to entrepreneurs.

MORE SUCCESSION PLANNING POINTERS:

Do you have a formal succession plan in place? What does it contain? Let us know using the comments section below.

Loading comments, please wait.