Succession planning in the warehouse
Tuesday, July 05, 2016
Whether you are a chief executive, a supervisor or in between, certain questions about you and your job should be considered and answered. For example:
- Who can take over if you fall under a bus?
- Who will replace you, making you available for a promotion?
- How will your organization adapt when you no longer are working at your present job?
Succession planning is the development of a formal program to provide timely replacement for every key manager. It includes a system for developing potential successors within the existing organization, or for hiring new people as needed. The plan also is designed for protecting corporate and personal assets during the transition caused by succession.
Why is it critical?
While lack of management depth is the primary reason small enterprises fail, big businesses (and small ones) have been crippled by giving inadequate attention to succession planning. Because warehousing is a highly personal business, failure to plan for management change can be particularly disruptive. When a key executive is lost, customers may be lost as well.
Inadequate or improper succession planning can result in serious damage. Consider the following unfortunate examples:
- Inactive family shareholders sued their company over management and dividend policies.
- Following the death of the CEO, and succession by his son, a dispute with a major customer resulted in the company going out of business.
Now, consider these notable success stories:
- One company has experienced the smooth transfer of the chief executive office across six generations.
- Another company sold its real estate so the founder could maintain sufficient liquidity for estate planning.
- A family-owned business replaced its chief executive with a more capable, nonfamily manager.
After a successful corporate executive became mayor of a major city, he questioned each direct report about succession. "Who would take your place if you fell under the subway?" Hardly anyone could answer, so the mayor insisted each executive have an answer within 60 days.
The same question can, and should, be asked in every warehousing organization. People who have trouble with succession planning can, and should, receive help completing the process.
The basic steps
First, you and your direct reports must identify potential successors. Who in your company is capable of moving up, and how soon could it happen? Where no successor is available, can you afford to hire one?
Second, after identifying successors, put the plan in writing. Although it is not to be published companywide, it must be accessible to more than one person, in the event of immediate need.
Third, plan for contingencies. That includes every kind of disaster that can be imagined.
Consider the catastrophe
Do you allow more than one executive to ride in the same airplane? Do they travel in the same automobile? If so, what would you do if an accident resulted in the death of everyone in the vehicle?
The 9/11 attack in New York City destroyed the majority of management in several companies. How can we plan for another attack of such scale?
Most companies give little or no thought to the threats just described, but you might want to consider them in your contingency plan. The warehousing organization with key managers stationed in several cities may have some protection against enemy attack. Travel policies can protect against the risk from a vehicle accident.
Some logistics providers disclose their disaster plans to their customers. One major transportation company describes its survival plan in the event that its primary air hub is disabled or destroyed.
The most common roadblock, simply, is optimism. Our culture has a deeply ingrained confidence in the future. Americans behave as if death were optional, yet the reality is every one of us eventually must be replaced. Denial is not productive.
Neglect is related to optimism: A succession plan is created, but nobody keeps it current. As business conditions and personnel change, the plan becomes obsolete.
Contingency planning is important, but failure to consider every potential disaster is a common error. Are you vulnerable to the consequences of violent weather? Is there any potential showstopper you have overlooked?
Fear of conflict can serve as a roadblock within a family-managed business. Does the succession plan treat all of the rising generation of children in an equitable manner? Equity does not mean that each child has equal value to the business enterprise. Equity means that each is treated fairly.
Closely related is the inability to face the issue. Is the chief executive willing to recognize that the next generation does not include anyone with "the right stuff" to manage the company effectively?
Finally, failure to communicate can be a serious roadblock. Perhaps a succession plan does exist, but it is a well-kept secret. If the holder of the secret is wiped out, the plan disappears as well. While succession planning cannot be communicated to everybody, the company attorney or other trusted advisors should have copies of the plan.
The role of a board of advisors
Large companies, or those with multiple owners, frequently operate with a board of directors. Directors have substantial power as well as liabilities. A board of advisors has no liability, and its activity is limited to providing advice to management. Such a board can be particularly valuable within a family-managed enterprise.
The board should be the fallback for managing any gaps in succession planning. When no plan exists, the board will be instrumental in replacing executives. The board also can take steps to protect the assets of the company, as well as its major shareholders.
When recruiting a board of advisors, it is important to recognize who should not be recruited. Keep the following in mind:
- Board members should not be employees.
- Normally, none are family members.
- They should not be major customers or suppliers.
- Your attorney, or an independent CPA, may be asked to serve as resources, but not as members.
Protecting the assets
Insurance policies are available that pay for business interruption and/or the loss of an important executive. When your company acquires another business with a dynamic chief executive, such an insurance policy provides some protection against the unexpected disappearance of that executive.
Estate planning is part of the process, so your company may engage a specialist to provide an outside opinion on your succession-planning program.
Valuation of assets also is important, and some companies periodically appraise real estate in order to position the company for possible sale, as well as to plan for contingencies.
If your company has substantial liquidity, the retention of a money manager to supervise investment of funds is part of the process of protecting assets.
Developing your own replacement
Succession planning should start with you, therefore, a first step is to select your replacement. Selection of a number two person enables you to start delegating now, freeing your time for strategic activities, instead of many of the tasks you currently handle. It also provides an opportunity for you to bring in someone having skills that you do not possess. For example, if you are not a great writer, bring in someone who is.
Before you start the process, consider the answers to these questions:
- How will the development of my replacement benefit the company?
- How will it benefit me?
- Will we do things differently when the No. 2 executive is in place?
Begin the process by developing a profile of the ideal candidate. Consider using an industrial psychologist to develop an assessment of potential candidates to be compared. Whether you are promoting from within or recruiting from outside, talent is far more important than existing skills or experience.
Fresh ideas usually are more valuable than substantial industry experience. Do you want a different leadership style, or more of the same? The leadership capability of the candidate is critical. It can be determined through tests, as well as observation.
The introduction of your replacement will result in revision of the organization chart and an integration process. When, and how often, will you meet with the No. 2 manager, and which tasks would you delegate to that person? Will some direct reports be transferred from you to No. 2? Can you effectively create an operating partnership?
The worst mistake also is the most common: the failure to plan.
Equally dangerous is the selection of a successor who does not have the talent to handle the job. Skills and experience can readily be acquired, but talent cannot.
Another critical error is to replace a key executive "on the cheap." That is particularly tempting in this recession-driven economy. Conducting a compensation study to discover what other people are paying for a similar position may help you avoid this error.
Finally, it is a mistake to be inflexible. Change is difficult, and accommodating change may require some adjustments that were not anticipated.
Create an action plan
It is easy to procrastinate, and putting off the process is equal to not doing it at all. Once you recognize that your succession plan is nonexistent, obsolete or simply inadequate, you should initiate an action plan that includes specific assignments, deadlines and progress reports. Remember that survival of your organization is at stake.
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