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Issue 0045 Businesses Need a Broad Succession Strategy

The normal understanding of succession is basically what would happen within the business if something happened to the owner or CEO.

I believe that a “succession strategy” requires a far broader review of what’s happening within a business relative to succession because there should be a succession plan for virtually every position within a business. The concept of a “succession strategy” will become far more important in the near future with the introduction of Early Stage Innovation Companies (ESIC) from 1st July 2016.

As experienced business people commence evaluating proposals for investment in ESIC, as part of their due diligence process, they will be very keen to look at:

  • The management team.
  • The ownership of the Intellectual Property (IP).
  • Is the IP properly registered?
  • Has the IP been properly documented?
  • Have assignment of IP agreements been prepared?
  • What is the “succession strategy”?

Is everything “locked up” in the CEO’s head or do a number of key management personnel have direct day-to-day involvement in the real management of the business? This becomes very important when investors are investing their hard-earned money into new emerging companies.

The development of a “succession strategy” is a task that accountants, who are committed to offering business advisory services, can supply to their clients. In this review I believe they would start in conducting a “succession strategy”, which would involve a review of the corporate management chart for the organisation, who does what and are there any obvious holes.

The next step would be to review the job descriptions for each of the management team members and then a discussion with them to determine what they actually do. Are they performing in accordance with the job descriptions or has the job description been varied?

The next task would be to review the job description of the CEO, then have a discussion with the CEO to ascertain what exactly the CEO does day by day.

The next phase is to conduct a Corporate Governance “Think Tank Meeting” with the management team members, including the CEO, for a full review of all aspects of the organisation and how it all relates back to the company’s Board of Directors and Board of Advice if the company has one (Management Team Meeting if there’s no Board of Advice).

What are the responsibilities of each management personnel to the broader structure of Board of Advice, Management Team Meetings and Board of Directors?

Part of this process would involve the development of a “skills’ matrix”. Most businesses have 50-60 key areas of responsibilities and it’s always very important to ensure that a detailed analysis has been prepared as to who is responsible for each of these tasks, to ensure that there has been appropriate allocation of the responsibilities throughout the organisation and that it’s all not left to the CEO. In some businesses, 85%-90% of the items on that delegation list have, in fact, been allocated to the CEO, in many cases, by default. That’s one of the key areas that a review of a “succession strategy” should be able to overcome.

Another important outcome of this process is going to be the determination of a “skills development strategy” for each individual management team member for the next 12 months.

Out of this process, the management team members will have a greater appreciation of their role and how they fit in to the Board of Directors’ reporting and/or Board of Advice’s reporting process. Succession will be enhanced by the delegation of more of the responsibilities of the CEO so that the CEO can concentrate on his/her most important function, “to plan the future operations of the business”, hopefully, with appropriate communication to the other members of the management team. There would also be current job descriptions.

 

Find an Accountant/Adviser

You might ask: “Where are these accountants that can undertake this type of work because our accountant is only interested in preparing income tax returns?”

ESS Small Business has a directory of accountants who are interested in supplying a wider range of services, commonly known as “business advisory services”, to small/medium enterprises. This directory is called “Find an Accountant/Adviser”.

Visit www.esssmallbusiness.com.au and click on “Find an Accountant/Adviser” menu tab. All you need to do is to type in your postcode and the system will then show you accountants in or near your postcode who offer a wider range of commercial services to small/medium enterprises.

ESS Small Business contains other free articles and articles for sale, prepared by approximately 20 other businesses, on a wide range of small/medium enterprise matters.

ESS Small Business also presents webinars, free of charge, covering a wide range of small business matters. These webinars are also recorded and are available for viewing.

Whilst you are on the ESS Small Business’ website, why not have a look at the offerings from a wide range of business people who are able to assist small/medium enterprises?

A copy of a complimentary article, “Succession Planning”, is attached with this transcript.

If you have any questions on services that accountants can offer, please don’t hesitate to contact us.

 



 

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Episode 0045 Businesses Need a Broad Succession Strategy

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