A Board Member’s Checklist for Succession Planning

There has been an increase in demand for business succession planning services as the baby boomer generation retires and ownership of business interest transitions. Many of the planning issues that are important to for-profit businesses also applies to not-for-profits (NFP) and trade associations. Leadership turnover creates stress on an organization, although with proper planning it can be reduced.

It is important to remember that succession of leadership happens due to a planned or unplanned event. This concept sets the stage for what the board needs to consider when discussing succession planning.

While there are many types of unplanned succession, i.e. unplanned succession or turnover of key management, a board must consider contingency plans that would allow the organization to continue business as usual. The organization needs to reduce its dependency on any one person as much as possible. No one leader, whether it is the executive director, a board member or the development director, can be larger than the organization itself. Below are topics to consider when developing a contingency plan:

  • Understand and document the roles and daily responsibilities of key leaders. Especially understand certifications and qualifications that are required for key positions.
  • Define interim leadership for key positions or functions. This may include board members and other management personnel.
  • Transition key functions including check writing authority, critical approval processes and systems access. Document these key functions and maintain a file including key passwords and other sensitive information.
  • Establish a public relations and communication strategy, which may include appointing a spokesperson or public relations firm to assist. This would also include direct contact with staff, key vendors, funding sources and donors.
  • Consider a supplemental compensation plan for staff. Retention of staff through an unexpected event is critical and the workload for some may increase. Design a plan where the board identifies which employees should be included, the amount of additional compensation to be paid, the timing of those payments and setting aside funds for this purpose are all steps that may be necessary.

To implement a succession plan, the first step is to perform a comprehensive assessment based on your specific circumstances. Just as many business owners are reaching retirement age, there are many executive directors and other NFP leaders that are as well. Other than the tax and financial planning around the transition of ownership, all of the planning steps in a business setting apply to NFP organizations. Defining the transition timeline for an NFP leader can be a very emotional process. Many NFP leaders have dedicated their lives to the mission and it may feel like an organization that they built. When developing a succession plan, the board should consider the following steps:

  • Establish a board committee that is charged with follow through and implementation of an ongoing succession planning process.
  • Interact with the management team on an ongoing basis to assess their capacity for more responsibility.
  • Define which leaders are critical and establish a process to discuss succession planning for their position. This process should include the employee defining his or her expected timeline for retirement and the key functions he or she performs and will need to be transitioned. Outside consultants may be needed to assist the board in assessing these plans.
  • Establish a non-qualified deferred compensation plan that gives certain employees incentives to retire on a specific timeline, but also to take the additional steps of preparing the organization for the transition by identifying, training and transitioning key responsibilities and relationships.
  • Define key relationships or agreements that need to be transitioned to the successor leader at least one-to-three years prior to the actual retirement date.
  • Set aside time to do annual strategic planning and specifically discuss the succession risks that exist in the organization and what steps to implement to mitigate those risks.
  • Ensure that policies and procedures manuals are maintained and updated internally.  This can be critical to those taking over management or leadership responsibilities.
  • Maintain and nurture relationships with key donors and ensure communication with those stakeholders continues regardless of which leader is in place.

Remember that succession planning is not a static process. As the organization and people change, the planning process needs to be updated.

This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. In addition, this publication may contain certain content generated by an artificial intelligence (AI) language model. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

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