Smooth transition: What happens when a business owner wants to step back?

By Robert Half on 29/09/2022
Reading time: 5 minutes

It can be hard to pass the reins of executive leadership on to someone else. Philip Hendrickx, managing director at Robert Half, explores the options for owners and chief executives looking to find their replacement before joining the board.

In private or family-owned businesses, the owner, often the chief executive, reaches a point when they want to step back from their day-to-day role. They might become president or chair of the board and relinquish their executive responsibilities on the road to retirement. Their non-executive position gives them a platform to stay involved in governance and decision making, but also opens the door for new leaders to flourish.

This transition can be tough for someone who has lived and breathed their business from day one. Leaders that have built operations from the ground up, and understand the detail of how they work, often struggle to pass on the reins of responsibility to someone else. The quality of this transition is therefore pivotal for them, the incoming chief executive and the board, so the business can continue to thrive.

On the surface, the board and the outgoing chief executive have two choices to make: appoint someone from the business or look for a chief executive with proven experience. But there is more to consider: in the process of finding a viable successor, they will have to evaluate their long-term approach to attracting and retaining talent – the biggest, and most important, challenge they face.

External appointments: fresh eyes, but potential clashes

A new chief executive from outside the business can be refreshing. They will come with a raft of new ideas, immediate experience of the market, and time spent handling the demands of the role somewhere else. In turn, this gives them the confidence to make bold decisions, execute on the agreed strategy, and establish the role as they wish.

But strong personalities can always clash. If a company is looking to replace a long-term leader with someone from outside the business, that person will need emotional intelligence, empathy, and a strong backbone. These qualities will help them to understand what the outgoing chief executive is going through, share responsibility for an effective transition, but also stand their ground.

A one-year handover period, for example, could help them to work together – sharing knowledge and building a relationship – before handing over the reins for good. It’s pragmatic, sustainable, but often overlooked, with some owners going through several chief executives before they realise there is a problem. Coaching can also help to prepare for, and work through, the process of letting go.

Internal promotions: planning for the future, letting go

A senior leader from inside the business comes with an advantage: they understand how it works, have experience at a senior level, and know the outgoing chief executive. Sales directors and chief commercial officers can often develop the experience needed to make a good transition; chief financial officers and regional managing directors are also close enough to make the step. But they may lack the same breadth of ideas found in external candidates.

Internal promotion will usually suit an owner who is ready to retire and can trust someone, more quickly, to run the business in their absence. There will be a previous hierarchical relationship to overcome – which might cause challenges if the owner isn’t ready to let go – but if the new leader has been developed to take on the role, they will have the advantage of building long-term trust before taking over. Again, empathy and emotional intelligence will go a long way.

Some owners, however, still struggle to invest in the process of internal succession. It needs to be developed carefully, with executives gaining exposure to the business through a programme of leadership development. A rotation through different departments or regions, if the business is geographically diverse, can provide valuable experience and new ideas, alongside an MBA programme. It’s a big investment, but one with a long-term return.

Towards a smooth transition

In both cases, owners and boards will have to reflect on how much they are prepared to invest in the process, and what might happen if they don’t. They will also reveal, often painfully, why too much control in the hands of one person can stifle progress. But challenging circumstances also reveal potential solutions: a transition using coaching, a supportive board, and an empathetic external chief executive, will help avoid wasted appointments; a structured approach to leadership development will deliver an internal succession plan and long-term dividends.

Either way, a smooth transition needs clear intentions, investment, and everyone – non-executive and executive alike – to work together for the good of the business.

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