Although there are probably many things you would rather discuss with your CEO than how to proceed if he or she unexpectedly dies or falls victim to some other tragedy, the fact is that you must. Companies without crisis-succession plans are at significant risk.
History has proved that the way companies handle these crisis situations can make or break them. A 2014 survey by the National Association of Corporate Directors reveals that two-thirds of publicly and privately held companies in America had no succession plan. This is for planned or unplanned succession.
Public companies are more likely and may be required to have succession plans in place, but very few private companies do, particularly those that are family-owned.
Losing a CEO to an unforeseen circumstance such as a tragedy, termination or resignation can create more turmoil than losing a leader to a situation you can see coming, such as a terminal illness or an orderly, planned change. Sudden losses can leave employees and other key stakeholders devastated and bewildered. Without a designated leader or clear path to the future, the business can suffer. This can be particularly disastrous for smaller companies.
While it is not uncommon for people to think their company could never survive the death of the CEO, the fact is that more often than not, it could survive with proper planning. Well strategized, efficiently executed succession plans bring benefits on multiple levels. In addition to providing a roadmap to help your company deal with the crisis, they put investors and shareholders at ease.
Of course, the core of your succession plan should be more than processes — you also must identify who will assume your CEO’s responsibilities. You should build a bench of candidates. In some family businesses, a family member with little history with the company might step in, so it is critical to have a succession plan to ensure the successor has adequate background and knowledge.
You also will have to address training: What kind of knowledge will the ascending CEO or interim leader need? Was there sufficient knowledge transfer prior to the need for it? Appointed successors, like an understudy in a Broadway production, must be well informed and ready to hit the ground running. This preparatory training should be an ongoing process.
Some businesses may need outside help on an interim basis, and there are companies that provide interim leadership assistance.
Succession planning should not only apply to your CEO; it should also include other senior positions such as President, CFO, CTO and CMO. Passwords, systems and processes should all be documented so your business can continue operating as usual.
A sound succession plan will contemplate how you will communicate with clients, customers, vendors, employees, investors and partners. Your key audiences should not learn about the death of your CEO from the news media, so you will need a public-relations and crisis-communications strategy that outlines how to best notify all your key internal and external audiences. It is interesting to observe the upfront, open manner in which Warren Buffett of Berkshire Hathaway (NYSE:BRK.A) is dealing with his succession. Buffet’s approach is much more well received than the way former U. S. Secretary of State Alexander Haig announced that he would be in charge after former President Ronald Reagan was shot (especially given the fact that the transition plan in the Constitution calls for the vice president to assume the leadership role).
If your business is family-run or family-owned with one family member playing a key role such as CEO, part of the succession plan should include not only a replacement CEO, but should also ensure there is an appropriate family member designated to maintain communication between the business and the family.
Consider “key person” insurance policies that can be owned by the company. The liquidity of these policies can offer the company the breathing room to survive a crisis. Some bank loans provide for calling the loan due if a certain person passes away, and that can be strategically insured around with a key person policy.
Another key consideration: bereavement services for grieving employees. In Miami, the Children’s Bereavement Center, which provides assistance to people of all ages, offers varied support groups and other services for bereaved adults, and resources for professional organizations and businesses dealing with trauma or crises. They are available on short notice.
Although the days and weeks following a tragic loss will certainly not feel like business as usual, they should be guided by a sound succession plan to keep the company on track with as few disruptions as possible. Investing a little time now to put the necessary plans and infrastructure in place can make all the difference when the unthinkable happens.