How to guarantee a company's future after the GM's retirement – frequent questions

Nobody lasts forever or you need to find your successor!

Author: Milena Pervanje  

The question of a company's management succession is one of the toughest issues I encounter in my work. Many managers have problems when it comes to admitting that they are transient and replaceable. Hence they can not comprehend that one day they will simply have to let somebody else take over, which is something one should prepare for in advance. Giorgio Armani, for example, is 84 and still insist on running his empire so his potential successor remains a matter of pure speculation. Believe me, it would be much better for his employees, business partners and himself had his successor already been known. This article will help you act smarter and better. 

General manager's or management board president's position in crucial for every organisation. Not only does this person have an immense influence on the business process is also responsible for how employees, shareholders, investors and everybody else see the organization, its reputation and organizational culture. But despite this influence this person is still only a human being, subject to the laws of nature, so he or she will eventually need to be replaced.

Here are answers to some of the most frequent questions so a situation like this won't surprise you weather you are a GM, an owner or a HR manager. I prepared them based on my experience with succession in a number of companies I have worked with.

Who decides about a successor?

A general manager of a company is named by the company's owner (or by the owners through their supervisory board) so a decision about a successor is also the owner's to make. It is not unusual for a GM to choose his successor and to introduce him to the owner or the supervisory board, but the final decision lies in the hands of the owner as does the responsibility to ensure a decisive, diplomatic, efficient and timely selection process to find successors and, in fact, people for all management positions. 

So it makes sense that a GM is clearly and timely (perhaps as soon as at the start of his employment) informed that the owner will responsibly and for the benefit of the company initiate a process to find a successor. An owner should inform a GM about that tactfully yet decisively and assuredly.  When the time comes an owner must initiate this process and engage the GM or board president in it.

Should we look within or search outside?

As soon as the owner realizes that in time a successor of the GM or board president will have to be selected a question arises of whether to look for an appropriate candidate inside the company or to search for one outside the company.  In developed markets with long traditions where companies have gone through a number of general managers research shows that about one third of successors come from the outside but even in these cases outside people are often selected only because of mergers and acquisitions or due to a company branching out to new fields. But mostly owners select someone who already works for them to succeed a GM or board president.

We should groom successors for all key positions within a company.

In most cases an internal successor is the most appropriate, cheaper and most painless to choose, especially when a company is stable, has not changed its business goals and strives for continuity. An outside candidate, no matter how good he may be, shakes things up, causes discomfort and at least a temporary drop in motivation. Making moves which are too authoritative and drastic he can cause a lot of people to leave which presents a significant risk for the company. However, finding outside candidates for key positions is advisable when a company is facing major changes, is in need of crisis management or needs to restructure its business processes.

Is it better to groom one or more candidates?

It may seem easier to groom one candidate who is mentored and educated. He follows the GM like a shadow on all of his daily business activities. However, in the long run it may prove that this person is not a suitable candidate after all but by then the company is out of time to groom another successor.     If such a person already takes the position of a new GM while the previous GM is no longer around to help out and there are no other potential candidates to take over – well, this can be fatal to a company.

This means it is better to groom a number of candidates for leadership positions and, when the time comes, choose among them the most appropriate one to fill in the shoes of a general manager or the board's president.

Grooming successors is only one part of a continuous personal growth process a company must have in place for people in management positions and for promising novices as well. Management development is an expansive, continuous process for people in managerial positions. It is among those people that the general management and a supervisory board may choose the ones with exceptional characteristics to be considered as successors for positions which are of special importance to the company. It is wrong to think that only a GM should have a successor. One must see a wider picture and plan for successors for all key company positions. The latter should be defined by the company's management in co-operation with its supervisory board (owner).

There are no suitable internal candidates. What should you do?

If a lack of suitable internal candidates or some other reason lead the owners to look for a GM's successor outside the company after all, I strongly recommend they hire a human resources expert who is experienced in finding candidates for managerial positions. Such a consultant has an in depth professional knowledge and also an overview of quality candidates outside the company's narrow field. A good consultant will contact top candidates, establish a relationship with them and present the position to them in a way that will encourage the candidate to meet with you even if a considering a new job wasn't even on their mind.

Finding a successor outside your company requires the help of a top management HR expert.

A consultant will run the credibility of candidates' references and will examine their professional qualifications so that the owner or owners don't have to rely on their gut feeling when making their decisions but can rely on quality data and an expertly guided selection interview.

However, and I must emphasize this, an expert HR consultant will only be able to provide a quality service if the owners or supervisory board present their expectations well. And I have to add - it is very hard to predict how a candidate will handle this new challenge of being a company's no.1. Such a prediction is hard even with internal candidates who are tried and tested in demanding projects and closely monitored for years, and it is much harder still to predict that for outside candidates.

What dangers can we expect during a succession process?

I already pointed out the biggest danger – grooming only one succession candidate which is like betting all you've got on a single roll of the dice. We can avoid this danger by grooming more candidates.

But even grooming several people poses some threats. A horse race syndrome may develop where only the no.1 company position is presented to the candidates and when the race is too public. Candidates focus too much on becoming the new no.1 and the competition among them grows too strong. When the decision is announced the ones who were not chosen usually leave the company which looses great people into whom the company has invested a lot. Such a successor selection process is too painful and despite choosing a good candidate the company ends up loosing.  To avoid such a scenario it is prudent to foster team work among the candidates. One of them will become no.1 but this is only one of the positions and only together, working as a team, all of them will be successful.

Another danger is that during the grooming process one or more factors change so much that a once promising candidate eventually becomes unsuitable. If this candidate was the current GM's or board president's favourite they might find it hard to admit the error. This is why the GM and the owners must work closely together and strive to create an atmosphere which enables them to monitor the process and react in a timely manner. It is advisable that the current board president is present at supervisory board's meetings when the matter of succession is discussed or that the owner and the GM regularly discuss this issue so that the GM does not feel left out and written off already.

A relationship between the GM and the owner or the supervisory board, which is seldom ideal, can pose one of the dangers as well. Sometimes the current GM or board president is such a strong personality that he will simply not allow a discussion of his own transience, not even with his closest co-workers and much less with the owners. Another extreme are the owners who can not guide the GM or are simply not qualified for this process.

At this point I have to mention family-run companies where the majority owner is also the general manager and where other family members hold other management positions. Finding a successor in these companies requires a special, different approach and you will be able to read about these special rules in a separate article soon.

Succession must be meticulously managed to avoid a number of risks throughout the process. 

We must take into account a very natural and human distress in which a GM who is leaving finds himself. Authoritarian moves from the background, jealous information hiding, personally identifying with the company which grew with him, favouring one candidate, searching for an unachievably ideal successor or even his own double, by idealizing the past and rejecting the real picture of the present – all of these moves can have a profound effect on the succession process. Most of these complications can be avoided simply by starting the succession process early enough and by planning for a transition between the two people in no.1 position to be as soft as possible.

Sometimes it might happen that a company will need a new GM or board president suddenly due to an accident, illness or death. It is in cases like these that planning a succession process proves invaluable. Had a successor not been completely groomed or decided upon yet, at the very least we have a pool of candidates we can select an acting GM from, even if he does not become a successor in the end.

How to plan a succession process: