Most founders and CEOs don’t spend much time thinking about what happens after their tenure at the top is over.
But every business undergoes change, and part of that change often involves new leadership.
Whether you are a founder, a corporate board member or an HR professional, you’ve likely witnessed a leadership change or are planning for one in the future.
If you want the transition to go as smoothly as possible, read on for some tips on how to manage the art of stepping down.
See the Signs Your Organization Needs a New Leader
Family businesses and startups run into issues with leadership when they grow, particularly if the scaling up is happening quickly. Founders may have skills gaps and need to bring in an outside party to take things to the next level. This can be stressful, but the key is to keep communicating. If you’re the leader in question, it’s time to get honest about where you could use some help.
“In working with startups, I often see founders/leaders who are great at running a five to ten-person company,” explains Lori Dernavich, a Growth Stage Leadership Advisor in New York City.
“At this point, everyone can still sit around a conference table, so communication is easy. When they scale, they run into issues that are observable and become quickly problematic, like the inability to delegate because the founder is having a hard time giving up their ‘baby,’ or poor communication as more people are hired and become spread out.”
If these issues sound familiar to you, it’s time for a change.
Dernavich says that lack of skills, financial, product management, sales, marketing, becomes apparent as these needs become greater and more complex. If founders aren’t able to improve their leadership skills quickly, they may need to step aside.
But scaling up isn’t the only reason new leadership might be necessary at your organization. According to Pamela Wasley, CEO of Cerius Executives, an on-demand interim executive placement firm based in Irvine, California, leaders typically step down for four reasons:
- Medical leave or sudden passing
- Personal or family reasons
- Burn out
- The board asks the executive to leave
For example, in April of 2015, the toy maker Mattel indicated in a regulatory filing that it “terminated” Bryan Stockton as CEO. While the company didn’t give a reason at the time, Mattel’s global sales fell seven percent to $6 billion in 2014 and sales of Barbie products declined for the third straight year.
According to Wasley, poor performance, allegations of illegal conduct or behavior that may be damaging to a company are reasons a board will ask a leader to step down.
Though the need for a leadership change may not always be so obvious, it’s often not completely subtle either. If growth has stalled and the business is struggling, it’s probably time to bring in new leadership.
Change does not have to be disruptive with good planning. For a business with more than 25 employees, there has to be significant preparation ahead of a leadership change.
“In a perfect world, a high level executive or business leader should at least consider grooming a potential successor for a period of time so as to make the transition from one leader to the next as smooth as possible,” says Bradley S. Hunt, Attorney at Law with Brinkley Walser Stoner, PLLC in Lexington, North Carolina. “This would allow the potential successor an opportunity to learn the key functions and responsibilities prior to the actual transition.”
Hunt adds that high level executives and business leaders should consider giving as much notice as possible so the business can prepare for that transition, even if it means bringing in the successor to work with the outgoing executive or leader for a few months prior to the actual departure.
In cases where a sale of the business is a possibility, even more planning on the part of the owners is essential.
Mark Dorman is president of The Alternative Board –Western Reserve (Ohio) and Dorman Legacy Advisors, which specializes in business owner exit planning preparedness and transitional planning. He says ten million businesses will change hands over the next few years as boomers move into retirement, and many have done no planning at all.
According to Dorman, business owners need to start early when planning their exit strategy, particularly if the goal is to sell the business. He suggests the following actions during this planning phase:
- Determine the value of your business and your non-business related assets such as investments, real estate, and qualified plans.
- Define exit objectives, including timeline, retirement income, and what you'll do next.
- Work to maximize the value of your business at your expected time of departure, while protecting its current value so it doesn't erode.
- Strategize whether the business will be listed with a broker or investment banking firm and who the ideal buyer would be.
Manage the Transition and Limit Disruption
Whether or not new leadership is also new ownership, the transition at the top of any organization will go more smoothly with at least a small continuing role for the outgoing owner or CEO.
According to Dernavich, if the leader has expertise that is valuable to the business, it can be beneficial for everyone if the leader stays on as an individual contributor or a subject matter expert, as long as they really do allow the new leader to lead.
“Transition can be in many forms and there is no set template for it,” says Wasley. “However, lots of communication, planning and setting expectations are key. Working closely with the board and/or owners can make a big difference in the transition.”
Mitch Harrison is CEO and president of First Communities Management in Atlanta. The company recently elevated its previous CEO and founder of the company, Rob Johnston, to a role as chairman, and brought Harrison in as CEO.
Harrison says that when a company’s founder transitions out of his or her leadership role, changes must be communicated carefully with both the employees and with clients. The founder is the face of the company and is often synonymous with the brand.
A new president must celebrate the culture, tradition and past, while also conveying the message that the business will evolve and thrive. He offers the following tips for limiting disruption to employees and completing a smooth transition as a new leader:
- Communication is key. Internal/external messaging should be well planned and establish that the shift is a natural and positive progression for the business. It is a normal human reaction to fear change, so the new leader needs to indicate that he or she is taking a strategic approach and being sensitive to the company’s and employees’ needs.
- Work to preserve and respect the core culture. Employees are less likely to seek other positions if they feel confident that there is stability, continuity and opportunity for them in their workplace.
- Maintain client relationships. Attention and emphasis should remain on the customer’s assets to avoid a lapse in performance.
- Put your stamp on the company. It’s not only okay, but it’s important to put your own stamp on the company and to push innovation forward.
Harrison says that having a solid strategy in place makes the transition to new leadership energizing rather than turbulent. It is an opportunity to create a vision for the future and create long-term growth and success.
As you work on a transition in your own organization, focus on the positives the process with bring, and embrace change. Good luck.