Spotted hyenas — Africa’s most successful predators — live in large clans of up to 100 members with a strict hierarchical structure. It is a matriarchal society, with the queen inheriting the role form her mother. All other females are ranked at birth for access to food, resources, and social support, ensuring the higher ranks are healthier and reproduce more. Unlike with spotted hyenas, succession in businesses is not always so clearly determined and requires careful planning.The Importance of Succession PlanningStrong leadership is key to a community financial institution’s (CFI’s) ability to thrive over the long term, particularly in a challenging environment. It is therefore essential that your CFI’s succession plan is solid and well-thought-out. Your succession plan should be robust enough to guarantee continuity of leadership and minimize disruptions to strategic planning and operations. A good succession plan also helps to preserve institutional knowledge, maintain stakeholder confidence, and nurture talent within the organization, leading to enhanced employee engagement and retention.Research suggests that while CFIs have increasingly focused more on enhancing their succession plan in recent years, there is more to be done. In Bank Director’s 2023 Compensation Survey, just over a quarter of respondents put succession planning in their top three compensation-related challenges. Four in five respondents were confident in their plans for an immediate executive departure, while only three in five believed they were well placed for long-term succession. Developing internal talent appears to be an area of focus for most organizations, with mid-level management being offered a mix of coaching, external programs, and other career development opportunities.A Roadmap for Effective Succession Planning While CFIs are strongly encouraged to have a succession plan in place, what that succession plan should include for a CFI is left largely to each institution to interpret. Here are five key steps to building a suitable succession plan for your CFI.
- Identify key positions. Start by determining which positions are critical to the smooth operation of the institution. Next, identify the competencies, knowledge, and behaviors required to perform in these roles successfully.
- Identify internal candidates. Review your talent pool and identify candidates who have the potential to step into an executive role. Conducting a skills gap analysis will help pinpoint areas for development and create individual development plans.
- Review external talent. Sometimes the right successor cannot be found internally and an external candidate proves to be the best option. Although they’re unlikely to have the cultural and business understanding of an internal candidate, they may bring a fresh perspective and help facilitate change.
- Monitor progress. A succession plan should be reviewed and updated regularly. Success can be measured by tracking internal promotions and employee satisfaction and by assessing the performance of those who have been promoted into leadership roles in the past.
- Close the loop. A well-planned transition will ensure the new executive is set up for success. If the predecessor remains temporarily on board to support the incoming executive, ensure the latter has the freedom to make their own decisions with the management team’s full trust.
Succession Planning for Family-Owned CFIsPoor succession planning is one of the key causes of failure in family-owned businesses. Several factors come into play here. For example, if there are many family members involved in the institution — or even possessing an ownership stake — issues of ownership and operational control would have to be addressed, regardless of whether the individuals have the necessary education, skills, and experience to tackle an executive role. Conversely, some family members may not have the desire to be part of the institution. There may also be generational differences in opinions on how the organization should be run, and the old guard may be reluctant to relinquish control. Finally, family conflict often results in businesses delaying the development of a succession plan.Balancing family dynamics with business interests is crucial for successful succession planning, but it takes time. When evaluating your succession plan, establish clear criteria and processes for selecting successors based on merit, skills, and qualifications. This can help mitigate nepotism and maintain the institution’s competitiveness. Involving your board and independent consultants in the decision can help ensure a more objective assessment of candidates, making the final choice less personal and less likely to negatively impact family dynamics.Every CFI’s future depends on effective leadership. Building a pipeline of capable leaders to guide the institution through challenges and opportunities will help prevent it from losing strategic focus and institutional knowledge. CFIs that make succession planning a strategic priority will be better placed to achieve long-term success in this dynamic financial landscape.
