What Does the Company’s Leadership Bench Have to Do with Its Value?

Daily operational demands distract from long-term planning, including succession issues. However, sooner or later, every company must face them, especially now, when many successful businesses founded in the 1990s are searching for someone who can continue the operational leadership as successfully as the founders. Of course, some business owners dream that their children will take over, but in reality, it is rare that the next generation possesses the necessary interest, talent, capacity, and drive to continue the business.

The main reasons why even the largest corporations worldwide often fail in leadership succession include insufficient attention to these matters, weak leadership development within the organization, a disconnect between declared leadership development principles and actual practices, and poor recruitment processes.

However, some organizations manage leadership transitions particularly well. Companies like Philip Morris and Circle K, for example, have developed practices that enable an employee to rise from a fuel station worker to the leader of the entire company. These are not just isolated success stories but rather examples of how companies provide their employees with opportunities to challenge themselves and grow. Good succession planning ensures that at each level within the organization, there is a bench of talent ready to step up from the next tier.

It is also important to think about the leadership bench beyond the company's borders. We often suggest that organizations assess the market and identify professionals who could complement the team during times of change. This typically involves a market mapping exercise for key leadership roles within the company, considering its future development prospects and supplementing the internal leadership bench with external alternatives. For example, a future focus might involve finding a leader who can help the company go public or drive more aggressive growth in export markets.

But which is better - to look for leadership within the company, or to look for new blood outside? The general rule is that if the company's sole objective is to continue well, then it is advisable to find a successor from within the company. If, on the other hand, the owners of the company expect more change in the development, it is better to look outside the organisation. And remembering that the approaches that have helped to forge the company's success in the past will not necessarily be useful in the future, it is imperative to consider the priority areas for development in the next strategic period when planning development.

Finally, there are now several business owners who want to sell the business they have built up over their working lives. However, many of these businesses have one drawback: they are based on one person, the founder and CEO, who often has a rather authoritarian management style that has, over the years, overshadowed the development of the talent around him, effectively making the rest of the team into order-takers. In such a case, the sale of the company will be virtually impossible, the potential owners will not be willing to pay the price that the founder and the CEO expect for the company, because the management team and its potential are also an important component when assessing the acquisition opportunities and the transaction price. Thus, paradoxically, it is the successor bench that can determine not only the sustainability of the business but also the price.