A proactive approach to succession planning eases leadership transitions.

A proactive approach to succession planning eases leadership transitions.

Leaders of financial institutions sometimes chafe at the many federal rules and regulations imposed on their industry, but Heartland Bank CEO Scott McComb has no problem with the one requiring banks to have a written succession plan in place that involves everyone from the CEO down to most mid-level management positions.

McComb says his company is such a firm believer in the value of succession planning that it would do so even it not required by government regulators. In his eyes, it is part of a business' responsibility to customers, shareholders and employees.

"I think succession planning is sometimes overlooked by company owners or CEOs," McComb says. "They'll say they're too busy running the company to spend time on it. But that's a miscalculation of managing risk for those businesses."

Such a plan provides companies with a ready-now list of candidates to consider when key executives and staff members can no longer serve because of death or illness or if they leave for another job. A plan also serves as roadmap for an orderly transition when a company leader wants to retire or dial back his duties.

That was the case in 2008 when McComb followed his father, Tiney McComb, as president and CEO as part of the bank's succession plan. Tiney McComb, a central Ohio banking legend who founded Heartland in 1988, died in 2012.

Scott McComb, who joined Heartland in 1999 after owning several other businesses, says he learned he would be considered to succeed his father about five or six years before the actual transition took place. That sort of succession planning continues at the bank. McComb and Heartland's human resources department regularly review the plan with oversight from the bank's board of directors.

Heartland board member Rick Vincent views the bank as a prime example of the value of succession planning. He says Tiney McComb understood such a strategy was vital to maintaining the bank's value and culture over the long haul.

"It has served the company extremely well," Vincent says. "After board meetings or when I read our annual report or financial statements, I often tell Scott, 'Your father would be proud.'"

A former hospital executive, Vincent is the longtime CEO of the Osteopathic Heritage Foundations and has served on corporate and nonprofit boards.

"It's absolutely the board's responsibility to have a succession plan in place, especially (for openings) on an interim basis," Vincent says, adding such planning helps safeguard the interests of shareholders, employees and other constituencies.

Vincent says a good succession plan should ensure that a competent person can step in on at least an interim basis when an opening occurs, so that operations continue to run smoothly. The plan also needs to be shared in advance across the executive ranks so there are no surprises about who is in charge when a company leader leaves or is incapacitated.

"If a CEO is doing his or her job," Vincent says, "they want to develop someone or several people on the staff who can fulfill those responsibilities. And sometimes the CEO has an integral role in planning for a successor."

Boards of directors typically expect their CEOs to have developed several internal candidates who are qualified to step in when key vacancies arise, says Rosemary Gantz, managing director at McIntyre Global Executive Search in Columbus. Gantz helps clients make long-term hiring decisions and evaluate related strategies; the search firm works with publicly traded and privately held companies as well as nonprofit organizations.

The development of internal talent is part of a process that Gantz calls "succession management." It is built around having an integrated system in place to develop talent inside the organization that aligns with its business strategy.

"The value of succession management," she says, "is you don't get stuck with short-notice vacancies in critical positions. You have multiple talent options to fill them. … Ideally, you want to retain, develop and grow that talent so they're available when vacancies occur."

Gantz says succession management requires a commitment from top leaders of an organization to spend time looking at their talent options and developing mechanisms to merge the workforce plan with a three- to five-year business strategy. Leaders from across the company need to be involved in the process, and technology must be leveraged to assess employees' career interests and aspirations, job performances and ability to build relationships and lead others.

However, internal candidates aren't always the best option, Gantz says. Sometimes an outsider is needed to bring in fresh thinking, provide a particular skill set or turn around a struggling company or nonprofit. When that is the case, McIntyre Global helps clients find the right candidate.

"The larger the company," Gantz says, "the more complex (succession management) is and the more reasons you need to put a comprehensive plan in place."

Such plans are critical for family-owned and small businesses, too, says Bea Wolper, a Columbus attorney who has been working with family businesses on succession and estate planning for almost 30 years. She is also cofounder of the Conway Center for Family Business in Columbus, a nonprofit that serves as a resource for the challenges and issues specific to family businesses.

"Succession planning is a journey," Wolper says. "You have to take the first step, and that's the hardest step to take."

Experience has shown Wolper that business owners often procrastinate on starting a succession plan, waiting for a health issue or retirement to force the issue. She says the ideal approach is for owners to start planning when they are in their 40s, 50s or early 60s at the latest.

Succession planning involves much more than transferring ownership to a family member or selling the business to employees or an outsider. Wolper says the exiting owner needs to make clear who has the authority to run the company when he steps aside and to ensure the next-generation successor can maintain the company's relationships with vendors, bankers, customers and employees.

"The transfer of knowledge is important, too," she says. "If you know what the secret sauce is and never tell your successor, it's not going to work."

Wolper says a succession plan also needs to be viewed as an "ongoing breathing document" that can be adjusted based on what is happening with family members, employees, vendors and the industry as a whole.

"You want to kick the tires every year," she says.

And sometimes it makes sense to sell a company rather than passing it on to family members. When that's the case, an owner needs to have a plan to clean up the business' financials and address any other issues that would get in the way of a successful sale, says Wolper.

Ohio Power Tool President Jay Amstutz says his parents, Jim and Suzanne Amstutz, had always talked about selling the company to an outsider when they were ready to retire, but the conversation began to change after Jay joined the company full-time in 2008.

"At that point," Jay Amstutz says, "I got the idea I really wanted to take over and be entrepreneurial instead of working for someone else. Eventually the idea was that I would (succeed) them down the road."

To get there, he and his parents began developing a succession plan with assistance from Wolper and the Conway Center.

"We tried to agree among ourselves on what we would like to do," Jay Amstutz says, "so we had a game plan where we could come in and ask (Wolper) if this is going to work legally and what we can and can't do."

With a plan in place, in 2015, Jay Amstutz became president of the 33-year-old company, which provides power tools, supplies, repair services and rentals to contractors and do-it -yourselfers. But his parents remain active in the business–Jim is focused on sales and customer relations and Suzanne oversees accounting, human resources and information technology.

"I feel like we've been able to agree on most of it," Jay Amstutz says, "but that doesn't mean it's easy."

His best advice on succession planning is to find other business owners involved in or having gone through taking control of a family-owned company. Amstutz has done that through the Conway Center, where he was part of a next-generation owner group and is now involved in a CEO peer group.

Lincoln Construction in Columbus found a three-prong strategy to be the best approach in transitioning control of the company from owner Kurt Schmitt to his son, Greg, and daughter, Andrea.

The two praise their father for his foresight in starting a succession plan about 15 years ago and sticking with it. The Schmitts have drawn on the knowledge of wealth management expert Jim Wyland, attorney Tom Bonasera and accountant Ron Grunewald.

"You should hire the best minds you can to develop a succession plan," Greg says. "If you have good people, it pays significant dividends for all involved."

The Schmitt siblings also say the experience they gained by working outside the family business has proven beneficial in the succession process. Greg served as policy analyst in Washington, D.C., and Andrea worked in the fashion and retail industry.

"That experience outside the business showed we could be successful elsewhere and were not just the children of the owner," Andrea says.

But she and her brother also had deep roots at Lincoln Construction. Greg worked in the field as a laborer during high school and college. Andrea also learned the "Lincoln Way" as a summer laborer.

Greg returned to work for Lincoln in 2004, and Andrea joined him five years later. In January 2015, they were promoted to president and vice president of marketing and human resources, respectively, of the 45-employee company. Their father remains heavily involved in the business as company chairman.

"We've learned you can't replicate 43 years of experience," Greg says, adding his father's astute planning has meant that "the issue of succession is not hanging over the business."

Columbus attorney Chuck Kegler at Kegler Brown Hill + Ritter has been helping clients with succession planning for more than 40 years.

"We know for sure that every leader will exit, and you've got choices," he says. "Would you prefer an elegant, planned exit or an ugly, poorly planned one? (Succession planning) takes time and someone who is very thoughtful and willing to focus on the goals of the organization short term and long term."

Kegler says the planning process involves going through a series of choices and weighing the pros and cons of each. They include turning over control of the business to a family member, doing a recapitalization to provide cash flow for the outgoing company patriarch, going with a management buyout or selling the business to employees or an outside buyer.

"It always gets back to the question of what are the goals," Kegler says. "Can we really be clear on the goals for the business, family, charitable organization or whatever it is? That will drive the plan… If you don't go about it in a systematic way, it's overwhelming."

Jeff Bell is a freelance writer.