Only 40% of privately held businesses have a succession plan in place for their organization. Only 55% of family owned businesses have a plan for their next generation of leadership. Over 70% of nonprofits do not have a successor for their original founder. Why does it seem so many organizations fail to plan for the next generation of organizational leadership? I have found succession planning is one of the few areas where both businesses and nonprofits have similar leadership challenges. I’m going to a program later this week on succession planning for privately held businesses. I’ll share what I learn from key financial professionals next week. This week I talk about what I’ve learned on why leadership succession doesn’t happen in organizations.

I’ve been involved in succession planning since the late 70’s. It was the first consulting job I did with clients and I still am actively working with organizations on their talent management and succession planning. I’ve worked on over 100 succession plans for key clients and partner organizations.

The first reason succession planning is not done is because there is always something more important to do. For most entrepreneurs, they are still actively involved in their business. They can find a hundred other things to do than talk to about who will lead their organization after their gone. Over 50% of my client s don’t put an emphasis on organizational sustainability. They are brilliant at what they do. In many cases, they’ve created visionary organizations. The problem for many is that they cannot see a time when they won’t be involved in their business. So why invest time into something that won’t build a lasting leadership legacy. My challenge is to get them to face their own mortality and still remain a long term client.

The second reason there is no succession plan is the founder doesn’t feel that someone else can do their job. For many in North American men, their lives are so tightly aligned with their careers, take away one and the other begins to falter. I have found than many market leading organizations begin failing when the founder can no longer see the future. Since many of my clients are technology based, the leader is unable to deal with disruptive technologies and capabilities in their markets. As their technologies mature, the type of leadership required also changes. Since many entrepreneurs are controlling by nature, when change begins to occur they may hold on tighter to the leadership of the organization. Leaders who have built significant organizations are not willing to bring in leadership that may add another dimension to their organization. In the worst case, they may begin chasing the out their successors, either because of fear of the unknown or they’re afraid they’ll be thrown out before they’re ready to go. The other part of this is that the leader can misread their own health and drive. They don’t notice health problems until it’s too late. I’ve seen several of my clients die before their successor is chosen. Sometimes it’s not a health issue but a random act the owner suffers. I’ve seen at least several senior leaders die in unexpected plane crashes and, in one case, it took out 3 of his successors. In the military, there are always succession plans to follow. You should have one too.

The final reason succession plans fail is that the leaders and their leadership teams underestimate the impact of a new leader on their organization. When Jack Welch named Jeffrey Immelt as his successor, several key executives left to run other organizations within several months. In the case of GE, they had incredible leadership depth to call on after the executives left. When a new CEO is named in a midmarket organization he or she may lose a critical member of the leadership team. If you’re in a small nonprofit, the moment you promote a new managing director, several of your team members may begin looking for roles outside the organization. You must be prepared to deal with these situations. The better you are prepared for the worst the less harmful it will be to your organization. We will talk more about how to do this in a future blog.

The challenges for a smaller business may also include a financial component to the succession plan. In many privately held organizations, when a team member on the leadership team leaves there is financial burden that the organization takes on. Since the stock is not publically traded many times the cash payout for private stock can cause additional hardship to the organization. I’ve also seen many smaller organizations struggle to pay both the former CEO and their replacement the compensation they feel due to them. This can undue and unnecessary stress during their transition.

Next week after the succession strategy conference, I will bring back the financial piece of the succession strategies process. For many of you CEO and Managing Directors, you will find this next blog incredibly helpful. I’ve got my copy of CFO for Dummies out and I’m not afraid to use it. Next week, we will share the financial secrets of succession strategies. See you next week.