What succession planning do I need?
I’ve built an industrial components business over the past five years to an £8m turnover. My management team has grown with the business, however I don’t feel they possess the necessary skills or formal training to take it to the next level. Ultimately I would like to step down in the next few years and sell the shares to the management team, retaining a non-executive role on the board. How can I ensure the team is best placed to take the business forward?
A. Jim Rogers of Grant Thornton writes:
Many entrepreneurs who build a business from scratch end up employing a team of managers who generally like to be led rather than lead from the front. While you may wish to sell some shares to the management team and step back from an executive role to become nonexecutive chairman, you need to be satisfied that one of your managers will emerge as a natural leader to replace you. Much of this depends on how long your managers have been part of the team, but it’s likely that if you don’t feel they possess the necessary skills, then the next managing director is probably not one of them. Finding him or her is therefore critical for you.
In practice, bringing in a managing director designate often happens when a management buy-out takes place. Having built up your business there must be some management structure in place, even if none of your team are listed as directors of the company. I assume that you plan to appoint to the board and this brings to mind the structure of board meetings, which will be a new experience for them. I would recommend you consider the appointment of a non-exec director who can attend these meetings and help you and your team structure the meetings to ensure they are both effective and that all aspects of the business are covered.
Running an effective board of directors requires strong leadership and communication to ensure that members of the board understand why they are there, what their responsibilities are and how they can contribute. They will also require a general understanding of company law and I would suggest you enrol them on one of the many courses available, which cover the workings of a board of directors including the legal constitution, legal responsibilities and liability of directors.
If you are going to be bringing your managers onto the board you should agree job specifications and descriptions for those individuals at an early stage. This is an effective way of assigning roles and responsibilities to each of your team and will ensure that both you and they are clear as to their position within the business. Too often in privatelyowned companies a lack of proper job descriptions and job specifications leads to confusion and ineffective management style, as assumptions are made that certain aspects of the business are the responsibility of others rather than the individual concerned.