Succession Planning - PwC publication regarding Famly Business

Succession planning’s goal is to provide the least amount of disruption to your business and to give you the widest possible choice of qualified candidates before you make that decision. While the process may consider candidates from outside the family and the company, in many cases it focuses on managers who are already with the company. This publication is the third in a series about family business corporate governance.

The newest module discusses the board’s role in succession planning, which includes:

  • Ensuring that succession planning is on the board agenda: Unless directors put succession planning on the board’s agenda, it likely won’t be addressed. It can help to have the board discuss succession planning annually. Broaching the subject could require delicate conversations with management, the founder, or other owners. It forces them to think about future control of the company as well as their own mortality—not easy topics.
  • Preparing an emergency succession plan: Even if you have a robust succession plan, unforeseen events can upend your projected timeline for the CEO transition. it’s important to have an idea of what to do in an emergency succession. It may mean accelerating the promotion of a planned successor or calling upon a current executive or a family member to take over on an interim basis. Another alternative is for a director to step in as interim CEO.
  • Advising the founder/owners when selecting the next CEO: If you want to keep leadership in the family and if there is only one qualified family candidate for the CEO role, the board’s job is easy. But when there are many candidates who want the role, the decision gets more complicated. While the founder/owners will have the final say, outside directors can provide perspectives on which candidate is best suited and ready. Indeed, directors who have run other businesses may be particularly skilled at assessing who might be the best choice.
  • Helping set the new CEO’s compensation package: If a company is still led by its founder, the board may not be involved in setting CEO pay. But with successor CEOs, the board can advise on creating a package that will motivate and compensate the new CEO at an appropriate level. And when the new CEO is a family member, directors can help ensure that person is fairly compensated in a way that rewards performance while not harming the economic interests of other family owners.
  • Assisting with the leadership transition: A first-time CEO can find it daunting to have a broader scope of control. A CEO recruited from outside the company needs to understand family dynamics and company culture. Directors, especially those who have experience as CEOs and who understand the business, can be a good source of support through the transition.

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