A Look at Succession Planning

CEO transitions can be a risky proposition. This can be especially true for industries like scrap recycling, where privately held, family-owned businesses are more common. Often times when a departing CEO has had a successful run, there is worry about a successor’s capability to maintain the status quo. When someone performs poorly, feelings of anxiety begin to emerge and employees can start to question whether and how quickly a successor will be able to right the ship.

Risk Factors

CEO turnover can be a source of increased tension for both internal and external stakeholders. It is not uncommon for them to start blaming the existing boss for leading the company down the wrong path. This is why it is so critical for those involved in the selection process to do everything within their power to ensure that the right candidate is chosen. Nepotism, seniority, and ego are just a few examples of potential variables that a committee or board of directors’ will deal with that can make or break the process. These factors will most likely come into play when there’s an internal succession.
This is especially true in the scrap industry, where many existing companies started as small family businesses, where the patriarch has every intention to pass ownership of the business onto their children. This is not an uncommon practice, but nepotism in succession planning can easily destroy companies. An example of this is the case of the Waxman Brothers.
Chester and Morris Waxman owned a very successful scrap metal business in Hamilton, Ontario. The two brothers were as close as could be until a dispute over whose children would eventually take over the family business. Morris accused Chester of illegally trying to direct the succeeding generation of ownership towards his own kin and away from Morris’. This resulted in a 20-year, $20 million dollar legal battle that caused irreparable harm to the families and everyone else involved. Now, one wonders if this whole situation could have been avoided if the brothers had just created a succession plan years earlier.
In many cases the outgoing CEO has the largest or only influence in the succession process. The question is: is the eventual successor the right person for the job? He (or she) often makes the mistake of either choosing someone in his own likeness, when what the company really needs is someone different, or choosing someone of a lesser standing to preserve their own legacy. However, the flip-side is, when a board is able to take control of the succession process from the CEO, they might be inclined to instantly go outside to hire someone from another company. These competing issues are even more complex in the scrap industry, where a special set of skills and knowledge obtained only through experience are usually required to successfully manage a company.
Herbie Black, President and CEO of American Iron and Metal Co., recently said in an article by the American Metal Market, “Every other industry—you name an industry—and there is a school where you can go and get educated. Scrap is the one profession where you cannot go to a school such as a university to learn. Those in the scrap industry learned the trade from working their way up the company,” he said. “When you take bright, capable, confident people and put them in charge of scrap operations without the education of working in the scrapyard, one has great difficulty in operating the business. Now the industry is lacking trained people at the top.” (Source: http://www.amm.com/Article/3320369/Scrap-metal-magnate-Herbert-Black.html)

Finding the right candidates and setting them up for success…

The first step is to create and implement a proper succession plan. It’s time to start moving away from the ancient practice of allowing departing CEOs to simply handpick their own successors. Board members need to work together to create a plan that is adaptable to the dynamic characteristics inherent to the succession process and the ever-changing demands of the CEO position. A good succession plan should also ensure that there are viable internal candidates to choose from. Depending on a company’s size, having to go outside to hire a CEO could be considered a failure in succession planning. Even with a proper plan in place, board members often fear that they cannot find a viable successor in-house. This can result from a lack of exposure to internal candidates or a true understanding of those candidates’ capabilities. Sometimes, board members might simply be unfamiliar with anyone that isn’t close to the CEO or their office. This is why it is vital that a CEO and the board need to get– and stay– on the same page. When developing a succession plan it is imperative that CEOs and board members remove personal bias and get over the myths about succession planning. CEO succession planning is a team event and a successful transition will be determined by how well this team works together.
An example of how a company can work cohesively to create a proper succession plan is when American Iron & Metal Co. hired Patrick L. Christopher from Schnitzer. Herbie Black doesn’t plan to retire any time soon but he has already named Christopher as his successor. Having Mr. Christopher working alongside him to start will give Mr. Black (and his board) plenty of time to evaluate and determine if he is the right man for the job. This also allows Christopher to get acclimated with American’s processes, systems, people, and culture before taking control of the company. As a result, American Iron has minimized the risk that comes with hiring an outside candidate to ensure a smooth transition.
In conclusion, proper succession planning is crucial to maintaining stability through transition. Far too often, companies will suffer the consequences of failing to put a proper succession plan into place. Board members and CEOs must shed any personal bias, egos, and agendas, and work together to ensure that the right person is selected to the lead the company into the future. Failure to do so could result in irreversible consequences.

Categories: Industry