Five steps to successful succession

A CEO in transition warns that Failing to Plan is Planning to Fail

By Phillip C. Richards
Wednesday, January 27, 2016

Being in the advice business for the last 46 years has made me painfully aware of the many reasons why small to medium sized businesses fail. One reason is that they have neither a succession plan nor a catastrophe plan in place. The former is a well thought out plan to transition the leadership of the business to a well chosen successor over a period of time. The latter is a risk management tool to keep the firm from failing if the CEO becomes incapacitated or worse — dies unexpectedly.

Unfortunately, the consequences of not having either one in place too often proves to be disastrous. In my profession, that of providing financial advice to businesses and professionals, it is estimated that no more than one in five firms have either plan in place. The consequences to all stakeholders, customers, stockholders, families and employees can be horrendous when the head of a firm procrastinates on this vital topic.  The noted author and college professor, Peter Drucker, said so eloquently that the effective executive need not do things right, but must do the right things. After all, you as the CEO won’t fire yourself for making a mistake no matter how big, but your ultimate success is dependent on doing the right things, on focusing on the important rather than the urgent.

Without such a continuity strategy in some state of execution leaves a business and one’s legacy at risk.  At North Star, I identified my successor more than a decade prior to my transition out of the CEO slot. Ed Deutschlander served as football captain at Macalester College in 1992 and was hired right off the campus by North Star in 1993. He has effectively been leading our 300+ person firm for the last few years and this past January 1, became CEO while I transitioned to Executive Chairman, now reporting to him. This seamless succession has been extremely well received by suppliers, team members, clients, advisors and family members, has preserved wealth for my family and other stakeholders because of continuity of management, and has been telegraphed to everyone far in advance of the desired outcome.  As an example, in spite of each flying over 200,000 miles annually often to the same cities, for the last decade, we have never flown on the same plane.

I can’t encourage the reader enough to prioritize this vital strategy — to do the right thing, as Drucker would say. It is a major part, if not the biggest part, of your legacy. What good is it to have built a successful business only to have it collapse upon your exit by either death, disability or retirement? The loss of value to heirs, the loss of jobs of those loyal team members, the negative impact on customers and suppliers are but a few of the calamitous outcomes to those left behind. Unfortunately, this is perhaps the major reason why most businesses are out of business within 10 years following the departure of the leader or founder.

Next to legacy comes the value of the business to your loved ones. The two major components that potential buyers review when buying a business are the trending lines of increasing or decreasing profitability over the past 5 years or so, and the degree of certainty of the ongoing management of the firm. To maximize the value of your business we’re compelled to have both types of plans in place, preferably funded with life and disability insurance for managing those risks as well.

So if your attention is peaked, how do we go about setting up a plan?

First is to have a written plan regarding succession, and a catastrophic plan drafted by your attorney and funded by your insurance advisor or financial planner.

Second is to identify another who is capable of not managing, but leading your firm in your absence. Vital here is culture (a compilation of all critical values) which must be shared by both of you.  Drucker says, “Culture eats strategy every day for breakfast.”

Third, have a plan for transferring the equity of your firm to others including the financials to accomplish business continuation.

Fourth, have a contingency plan if the above fails to work for any reason.

Finally, communicate your decision and plan to all stakeholders.

Failing to plan is planning to fail. By proactively planning and strategizing for the future of your business, you are doing the right thing by protecting all stakeholders involved, as well as the long-term success of your business.


Phillip C. Richards, CFP®, CLU®, RHU® is the Executive Chairman of North Star Resource Group, formerly the Chairman and CEO of 46 years. Under Phil’s leadership, North Star successfully grew from a basement office with 5 advisors to a firm with offices in 22 states with over 300 advisors and team members. Phil authored Twenty-Five Secrets for Sustainable Success, co-authored The Sky is Not the Limit, and Practice on Purpose, has been a featured speaker in over 15 countries and has addressed annual meetings of over 150 companies. Phil has been inducted into 6 National Halls of Fame.