Canada: Succession Planning – Reasons Why Companies Often Fail

Last Updated: March 27 2015
Article by Bryan Haynes

In a recent article in the Globe and Mail, Harvey Schachter provides a useful critique of a recently published book, Succession, written by Noel Trichy, a professor at the University of Michigan and long-time researcher on succession.

The article discusses the importance of continuity of leadership and developing a pipeline of future leaders who are willing and able to take up leadership positions within an organization. According to the article, Professor Trichy argues in his book that CEO succession is the No. 1 determinant of organizational performance and that succession planning is not just about selecting the best candidate from a pool of candidates but rather should be more about building a continuous pipeline of leaders from the inside.

The article also notes that although 80 percent of Fortune 500 companies have formal succession plans in place, many fail in practice. Why? Seven factors (the so-called "seven sins of succession planning") are cited, including: far too many succession plans look good on paper but are inoperable in practice; many organizations are ill prepared to respond to sudden changes and falsely assume they will have the luxury of time to find a successor; a domineering CEO with an outsized personality may cause future leaders from the inside to leave, often depriving the organization from the all- important leadership pipeline; and boards are often inclined to reach for high-flying outsiders (the so-called "halo effect") at the expense of promoting internal talent.

Although the focus of the article is on Fortune 500 companies, many of the principles of implementing a successful succession plan equally apply to small and medium-sized businesses. So is the importance of small and medium-sized businesses adopting succession plans. In order to avoid committing one of the sins of succession planning (namely, adopting a succession plan that is great in theory but poorly conceived), succession plans are by necessity bespoke and must be tailored to the needs and realities of each organization.

In an earlier blog ( Succession Planning: A Rare Tale of Family Business Survival), I reported that family business survival is a rare phenomenon in Canada with only about 30 percent of family-owned businesses surviving to the next generation and only three percent still operating by the fourth generation. Investing time and resources into succession planning and building a leadership pipeline would go a long way to increasing business survival rates in Canada.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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