Succession Planning

AAA

DEFINITION of 'Succession Planning'

A strategy for passing each key leadership role within a company to someone else in such a way that the company continues to operate after the incumbent leader is no longer in control. Succession planning ensures that businesses continue to run smoothly after the business’s most important people move on to new opportunities, retire or pass away.

INVESTOPEDIA EXPLAINS 'Succession Planning'

Succession plan entails evaluating each leader’s skills, identifying potential replacements both within and outside of the company, and in the case of internal replacements, training those employees so they’re prepared to take over. Succession planning is not a one-time event; succession plans should be reevaluated and potentially updated each year or as changes in the company dictate. In addition, businesses might want to create both an emergency succession plan in the event a key leader needs to be replaced unexpectedly and a long-term succession plan for anticipated changes in leadership.

In small companies, the owner alone may be responsible for succession planning. In large corporations, the board of directors, not just the CEO, will typically oversee succession planning. Also, in large corporations, succession planning not only impacts owners and employees, but also shareholders.

For small, family-owned companies, succession planning often means training the next generation to take over the business. A larger business might groom mid-level employees to one day take over higher-level positions. In a partnership, one method of succession planning has each partner purchase a life insurance policy that names the other partner as the beneficiary. That way, if a partner dies at a time when the surviving partner otherwise wouldn’t have enough cash to buy the deceased partner’s ownership share, the life insurance proceeds will make that purchase possible. This type of succession plan is called a cross-purchase agreement and allows the surviving partner to continue operating the business. 

RELATED TERMS
  1. Cross-Purchase Agreement

    A document that allows a company's partners or other shareholders ...
  2. Business Recovery Risk

    A company's exposure to loss as a result of damage to its ability ...
  3. Judo Business Strategy

    A plan for managing a company by using speed and agility to mitigate ...
  4. Leadership

    The ability of a company's management to make sound decisions ...
  5. Business Activities

    Any activity that is engaged in for the primary purpose of making ...
  6. Business Ecosystem

    The network of organizations – including suppliers, distributors, ...
Related Articles
  1. Personal Finance

    How To Improve Your Leadership Skills

    Being a leader can help you in your career. Here are some tips for improving your leadership skills.
  2. ogether, management and the board of directors have the ultimate goal of maximizing shareholder value.
    Investing Basics

    The Basics Of Corporate Structure

    CEOs, CFOs, presidents and vice presidents: learn how to tell the difference.
  3. Professionals

    The Path To Becoming A CEO

    Think you have what it takes to be chief executive? Find out what those at the top have in common.
  4. Investing Basics

    A Peek Into Shareholder Meetings

    Shareholder meetings can be glamorous, exciting or controversial, but not particularly revelational. Here's a quick look at what to expect.
  5. Entrepreneurship

    What Is Servant Leadership?

    Robert Greenleaf developed the concept of servant leadership, and many believe it is the key to avoiding greed-based company activity.
  6. Entrepreneurship

    Female CEOs Who Climbed The Corporate Ladder

    These women climbed the ladder and broke the glass ceiling.
  7. Entrepreneurship

    Getting To Know Business Models

    Learning how to assess business models helps investors identify companies that are the best investments.
  8. Entrepreneurship

    CEOs Who Blazed The Trail (Kroc, Hock And Welch)

    The right CEO can make all the difference in a company's market position.
  9. Entrepreneurship

    The CEO Dream Team - Walton, Schwab, Marcus And Blank

    The successes of these three CEOs can be linked back to one common factor: customer service.
  10. Options & Futures

    Keeping An Eye On The Activities Of Insiders And Institutions

    These transactions reveal much about a stock. We go over what to consider and where to find it.

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center