Succession Planning is Mandatory
The biggest companies in the world, including Procter & Gamble, do it. Shouldn't you?
By: Chia-Li Chien | Published 01/14/2010
When a household name like Procter & Gamble named Robert A. McDonald its new CEO in July 2009, we wondered, did the company have a succession plan?
A.G. Lafley took over as CEO of P&G in June 2000, and McDonald has been working side by side with Lafley ever since. As a matter of fact, Lafley was the one who put Organization 2005 into action. It was a long-range project that that transformed P&G from a $38 billion company to a $70 billion company by 2005. Lafley handed that $78 billion company over to McDonald this year.
So besides the organization's architectural design, how does P&G implement its succession plan? According to an article in Fortune magazine, P&G has a two-page General Manager Performance Scorecard that's reviewed every six months: one page for the financial performance, the other page for leadership capability performance. P&G keeps a running chart of 35 to 40 potential candidates for various jobs. The company puts them on different assignments to groom them. It puts them in front of the board to present. When the time is right, a few of them will rise. This is a great "build within" system rather than "buy" talent from outside.
When it comes to privately held business, from small to mid-size firms, very few do this type of succession plan. The entrepreneur or owner of the company doesn't think about succession until she hits certain triggers. Five common triggers are:
- Health problems
- Emotional and physical drain from owning the business. She might lose the fire in her belly, feel bored or be unwilling to fight another economic cycle.
- A family situation, such as a spouse's pressure to retire, divorce, or belief by children or employees that the owner is too old-fashioned.
- Lack of capital to take the company to the next level, or the owner feels like she's hit a wall.
- Competition or the company has been struggling
P&G's proactive plan for succession does not come cheap. It takes 10-plus years and a corporate culture to achieve it. However, those who promote someone without a proper succession plan often pay a big price down the road.
During a recent regional meeting of the Women Presidents' Organization, I learned about the" top grading" method of hiring the right person for the right role. As Bradford Smart writes in his book, Topgrading: How Leading Companies Win by Hiring, Coaching and Keeping the Best People, "Simply put, topgrading is the practice of packing the team with A players and clearing out the C players." Again, this is an upfront investment for the owner.
We all know that people are the ultimate asset we have in our business. Your company value is directly tied to the professional key management team--not including you, the owner. We all have to work ourselves out of the "boss" job and give ourselves a promotion to chairman of the board of our company. That way you can truly be an architect of your company to create value that you ultimately will receive when you're ready.
Many companies will hire consultants for interim key positions such as vice president of marketing, vice president of sales or even CEO. Your future buyers want to know that you have a solid professional key management team in place to run the company--one that can consistently produce predictable profits for the buyers. The buyer could be your son or daughter, your employees, an outside third party or even a synergized competitor. You'll need to demonstrate that your company can run without you, the owner.
This takes time to plan and implement. Don't walk alone. Ask for help. You can leverage the time you have now to build a great professional management team. It will be worth the investment and will position you and your company differently in the marketplace.
P&G is a 172-year-old company; it hasn't survived by accident, and it doesn't thrive without carefully implementing the right organizational architecture and expansion plans. The management team you build with a proper succession plan for each of the key positions will ultimately increase the value of your company. P&G's stock continues to climb since the new CEO took office in July. You, too, need to craft the future carefully to capture the value you ultimately will receive.
Chia-Li Chien, CFP®, CRPC, PMP; helps women entrepreneurs to convert their business into meaningful personal wealth. She is the author of Show Me The Money and columnist for WomenEntrepreneur.com & Fox Business online. She is available for consulting, speaking engagements and workshops. She can be reached at www.chialichien.com or firstname.lastname@example.org.
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