NORTH BAY – Less than 20 percent of executives surveyed in a national poll said that they had selected a successor, despite the urging of business succession experts in the North Bay and beyond that the issue not be taken lightly.
Of the 1,400 chief financial officers who participated in the April survey from Robert Half International, 83 percent said they had not identified a successor. Four out of five of those responding said they had no plans for leaving their role, encouraging questions about the fate of the company in the event of an unexpected death or other emergency.
Having a well-considered successor identified can show investors and employees that a company is prepared to survive past its founder or current leader, even without an unexpected exit and long before a planned transition, said Michael Lusby, regional vice president for Robert Half.
“The risk is waiting, not the things that could happen,” said Steve Jannicelli, a partner in the business consulting group of the North Bay office of Burr Pilger Mayer.
It’s an issue that carries particular weight in the North Bay, where many business owners are of the baby boomer generation and looking towards retirement, he said.
For those who do have a plan, many chief executives make the mistake of choosing a successor based on their talent as an employee, even though those skills may not transition to becoming an effective leader of the business.
“It’s like taking a really good athlete and making them a coach—they may not be able to do it,” Mr. Jannicelli said.
Another common mistake is passing ownership to a family member for sentimental reasons, not taking into account their fitness as a leader, he said.
“The dynamics of transferring a business to a child or children is likely to be encumbered by emotional issues less present in the other two exit strategies. This makes planning more than just a numbers exercise. No two cases will be identical,” wrote James A. Andersen and Joseph G. Emanuele of BPM in a presentation for the CalCPA Education Foundation.
The process is not easy, and it can take years to find a person who can maintain the stability of the business after the exit of its owner.
Amid the day-to-day bustle of running a business, many owners say they don’t have the time to plan for their succession, Mr. Lusby said. In the worst-case scenario of a top executive’s unexpected exit from their role, having that C-level chair vacant for too long can portray the company as disorganized or unprepared.
Planners recommend a gradual approach, including a significant overlap period for the outgoing leadership to transition key client relationships to their successor. It’s a crucial step for small services companies like architecture and accounting firms in particular, where the reputation of a handful of employees can have a huge impact on the organization as a whole.
Knowing that they will one day inherit the company typically inspires a successor to embrace their future role, and establishing that succession early can have a transformative effect on the future leader, Mr. Jannicelli said.
Not every business owner chooses to find a successor—many sell to a third party. The choice is complex, involving an evaluation of the owner’s goals for themselves, their offspring and the company.