Independent Thinking^®

Successful Succession Planning: A Continuous Process

Two companies are created by men born 111 years apart. The first, Cargill, a producer and distributor of agricultural products, becomes one of the largest and most successful private companies in the world, still family owned. The other, Microsoft – well, you know. So, what do these two companies have in common, apart from being built by men named William? They both struggled and ultimately succeeded, in very different ways, with the issue that vexes every lasting concern – succession.
 
As an advisor for 50 years to business owners, executives, and multigenerational families, I have observed that succession planning should be viewed not as a one-time event, but as a continuous, evolving process. Most big companies develop a pool of talent and observe that talent over time. If the company or family is doing well, internal promotions can be the best path to continuing success. If the business is faltering, turning to the outside generally produces better outcomes. According to a recent analysis published in the Harvard Business Review, the amount of market value wiped out by badly managed CEO and C-suite transitions in the S&P 1500 is close to $1 trillion a year. The report estimated that better succession planning could add 20% to 25% to company valuations and investor returns.¹
 
That’s true for small businesses and for families too, as succession planning enables functions to be passed from one leader to another, recruiting from the outside and appointing independent trustees as needed. When the 74-year-old Charles is crowned King of what his father described as “the firm” on May 6, it will mark the latest stage in a planning process that really started in 871 with the succession of Alfred the Great. (It may also highlight some of the pitfalls of designating a successor merely by birthright.) While most of us don’t aspire to this grandeur, many of us would like to identify the right future stewards of our wealth for our families and our businesses.
 
On a personal note, succession planning was a big issue at my earlier firm, where over my first decade there were four chief executives, which during that time diminished the value of the firm. But the last of the four was a great success, and when he reached mandatory retirement age at 65, he promoted me to president at age 42, as part of a well-planned succession process. All of this was very much on my mind when I helped found Evercore Wealth Management at the age of 61, with a view to running the firm for 10 years. Over time, I worked with Evercore senior management to identify and prepare my successor. When the time came, we had a smooth and successful transition to Chris Zander, one of our founding partners, and I was able to stay on as a nonexecutive chairman, which works well for us and, I believe, for our clients.
 
In a similar vein, we actively and continuously plan for the evolution of our firm, as partners and other professionals retire – to ensure that our values and culture, as well as our expertise, are carried forward, and our clients have time to work with and approve our suggested successors. And we encourage our clients to ensure that their other advisors – whether attorneys, accountants, doctors and the like – also have succession plans in place. You probably don’t want to get old with your dentist.
 
As for the two Williams and their somewhat larger companies, I imagine that William Wallace Cargill would be gratified to know that 158 years after its founding as an Iowa grain-storage business, his company remains in family hands, perhaps because subsequent generations realized that its affairs had become far too complex and turned to outside management starting in the 1960s. Indeed, 14 members appear to be billionaires, making the family the fourth wealthiest in the United States. If Cargill were a public company, it would be among the largest in the country and perhaps among the most controversial – but that’s another story.
 
William Henry Gates III, better known as Bill, is probably relieved to focus on his philanthropic interests after the six-month crisis back in 2013 when his successor, Steve Ballmer, announced that he was quitting and the scramble for his replacement resulted in the internal promotion of Satya Nadella, a 21-year veteran of the firm – and a subsequent 30% gain in the company’s stock price over the next 16 months.² Two very different companies, two very different succession solutions after periods of arguably unnecessary turmoil, but in the end the right choice for each.
 
In our view, the earlier we plan for succession – and the more we continue to invest in it – the better the outcome.
 
Jeff Maurer is the Chairman (and former CEO) of Evercore Wealth Management and Evercore Trust Company. He can be contacted at [email protected].

¹ A version of this article appeared in the May-June 2021 issue of Harvard Business Review.
² 7/31/2013 – 11/30/2014