Firing Line: Installing a Sucesssion Plan

As we continue to debrief the events that led up to the current economic crisis, I believe a significant lesson to be learned is that businesses must have a solid succession plan in place.

Strategy, at its most basic level, involves people and their ability to execute a plan. A business must have a strong leader in place that can drive the strategy to a successful conclusion; otherwise, the business could potentially fail. You must also have a contingency plan in case that leader is unable to perform his or her duties. This is succession planning.

The business world, however, is notorious for poor succession planning. Close to 60 percent of companies nationwide have no such plan. The number is even higher at larger companies, which one would expect to be even more aware than small companies about the acute dangers of a leadership vacuum. One of the reasons these large companies fail to succession-plan is simply ego. Many high-level CEOs believe they're invincible; no one could replace them.

In a December 2008 Barron's article, activist investor Carl Icahn likened companies to "Czarist Russia," where "absolute monarchies exist." He went on to say, "I think these guys who run these companies are still in denial. They still believe it is their divine right. At a lot of companies where I have been on the board, there was a lack of accountability."

For some CEOs, planning for their demise or eventual departure is to admit their mortality. Some say that the difference between a cult and a religion is that the latter can survive the loss of the leader. Unfortunately, many CEOs create a cult of personality around themselves.