From retirement to peer competition or a life changing event, the fear of the unknown is a constant threat to the prosperity of your business. A high risk to all institutions, mitigation can be achieved through the development of a strong succession plan. While there’s no specific regulatory requirement that financial institutions create a succession plan, community financial institutions can’t afford to be without one, and regulators generally view a formal plan as best practice.
Here, VonLehman's Larry Brown discusses five tips for developing an effective succession plan, one that accounts for all key executives and directors.
1. Look inward first
Although financial institutions often consider external candidates to succeed, naming an internal successor may offer significant benefits. Internal candidates are ensconced in the institution’s corporate culture, offering the advantage of continuity. When you bring in an outsider, there’s always a risk that he or she won’t blend into the culture. Plus, internal candidates are familiar with the institution’s operations, strategies, and the current agenda.
Another advantage is that your directors — at least in theory — already know internal candidates and are familiar with their work. To ensure that’s the case, invite candidates to present to the board and arrange other interactions between board members and potential successors.
2. Develop your talent
To increase your chances of promoting from within, have an active program for developing potential successors. Training, mentoring, and executive coaching can help you evaluate the potential of internal candidates and develop the skills they need to succeed in the executive roles.
It’s also important to manage candidates’ expectations to avoid a mass exodus when one person is chosen as the successor. Rather than treating the process as a competition, characterize it as a developmental opportunity for all participants and have a plan for those who aren’t selected.
3. Be prepared to look outward
Despite the advantages of hiring from within, in some cases it may be necessary or desirable to consider external candidates. Perhaps you don’t have a suitable internal candidate. What if your current executive dies or becomes disabled unexpectedly, and there’s no time to groom an internal successor? Or maybe you feel that your institution would benefit from bringing in “new blood.”
To prepare for such contingencies, it’s a good idea to track potential candidates at other financial institutions or even in other industries, possibly with the help of a recruiting firm. You may want to prepare a list of ideal external candidates in the market to replace key executives and directors. In the instance you experience an emergency, you’ll have an immediate list of candidates to quickly begin the succession process.
4. Start early
Start planning now for emergency succession events. For known events such as retirement, begin planning two to five years in advance. This gives you time to define the qualifications you’re looking for, draft job descriptions, and evaluate internal and external candidates. It also gives you time to develop internal candidates and formulate a retention plan for those who aren’t selected.
5. Review your plan frequently
A succession plan isn’t a static document you put on a shelf until it’s needed. It’s critical to revisit your plan periodically to ensure that it continues to meet your objectives. You may need to adjust your requirements, for example, in the event of changes in your institution’s strategies, regulatory environment, or other circumstances.
Make sure your institution mitigates the risk of losing key executives or directors by creating a strong, ever evolving succession plan. If your institution needs assistance with creating a succession plan, updating your existing plan, or would like an independent review of your plan, contact VonLehman’s specialized Financial Institutions Group today at email@example.com or 800.887.0437.