Finding Answers

In a recent article in the Wall Street Journal on September 21, 2009, discussed how larger companies like Starbucks and Avon are consolidating the power base into the CEO.  This is done by combining the CEO and COO positions and/or President positions under one person.  In essence the combination of those positions eliminates the #2 person in the organization.  What was once a clear line if succession has become a bit obscured.

The benefits in eliminating the #2 position in a large company are as follows:

• The CEO can be more involved in the daily operations of the business.
• The CEO will have a greater grasp on the major issues facing the day-to-day business.

The faults in such a combination of power are as follows:

• The CEO has more power consolidated within the company and can be swamped with too many decisions to make.
• A power vacuum can result with the abrupt loss of the CEO — not know who will follow can create quite the controversy, paralyzing an organization.
• Lack of a succession plan can indicate to investors that the company is not invested in the long term growth or does not see a future for growth.

While larger companies, given their depth of capital and long line of investors, can play with the fates a smaller company does not have that luxury.  It is in the best interest of a small company to have a succession plan in place.  If a family owned business a clear path of succession can make it easier for all family members involved to know what happens after the owner retires or passes away.  Does that eliminate conflict? By no means does it whatsoever, but it does lay out a clear vision for the future of the small business.   It also signals to potential investors, lenders, etc. that the business has a plan for the future and anticipates a leadership change.

A great example about the need for a strong succession plan by any company can be seen in Apple, Inc.  When Steve Jobs was ill and disappeared from the daily operations of the business Apple quickly placed the number two person at the helm. The result was the continuation of innovation, new product launches, continued profits and a well deserved stock price.  While Mr. Jobs is the embodiment of Apple, the company is much larger than him.

While we all wish that we could live forever, the reality is quite different.  A company that plans for the definitive change that will occur will be better off than companies that do not.

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