How to Approach Succession Planning

Kirsch CPA Group

May 27, 2021

Does your organization have a succession plan in place? And, if it does, is it well documented? Some not-for-profits delay detailed succession planning, thinking of it as a project they’ll get to “someday.” But that’s a mistake.

Like making future plans in your private life, creating a succession plan for your organization is a necessity. And the earlier you start planning, the better. You’ll come across information that needs to be documented for the successor — and you might also spot some issues that need to be cleared up before the transition.

3 Ways to Look at It

Three approaches to succession planning are common among not-for-profits:

1. Strategic leader development. This approach focuses on identifying talented individuals who have, or are capable of developing, skills to carry on your organization’s goals before the top executive or other key person has left. As soon as a successor is identified, the executive director should begin delegating some leadership duties to this individual. This approach gives the current executive director time to train and assist the incoming leader until he or she can competently handle the new duties.

2. Emergency. Emergency succession planning emphasizes continuing to achieve the organization’s goals and carry out its mission after an unforeseen event, such as death or disability of a director. In preparation, the key individuals should develop a list of their duties and step-by-step details on fulfilling them. They should ask themselves: How was I trained for this position? How have my responsibilities changed over time? What did I learn later that I wish I’d known from the start?

Board members should be involved in any type of succession planning, but especially in emergency planning because they’re obliged to see that the organization is competently led without interruption. A small not-for-profit, even if it has the capacity for nothing else, should have an emergency succession plan for its executive director.

3. Defined departure. This plan is appropriate when the key person has announced his or her retirement one to two years ahead of time. The goal is to build leadership strength: The key person wants to know that the organization can function well after his or her retirement, and the not-for-profit requires the same degree of assurance. Setting a target departure date with the board of directors is typically the first step, because it prompts those involved to develop a timeline.

Transition Training

Having both individuals work at the same time is one of the most effective ways to transition duties.

Example: Your finance director announces nine months in advance that he will be retiring, and your succession plan names a successor. While the two work together, have the successor assume some of the finance director’s duties, such as helping to enhance policies and procedures, doing some of the organization’s filings, and reviewing payroll. Gradually shift more work from the finance director to the successor.

If the successor isn’t already in the organization, consider hiring him or her a few months before the targeted transition date. To make the process run smoothly, again it’s important that the two individuals work together. The successor, for instance, might be unfamiliar with your not-for-profit’s accounting systems or internal controls. So hands-on training by the exiting leader would be beneficial.

No matter which approach you use, consider forming a succession planning committee if more than one key person eventually will be replaced. This will allow members of the organization with various types of expertise to provide feedback in the areas most affected by the departures. For smaller not-for-profits, forming such a committee may not be feasible.

It’s also important to document the succession plan. Although it might take some time away from other duties now, it could prevent a host of problems later.

Getting Started

If you find yourself struggling over how to start, you can find numerous free or low-cost succession planning toolkits online, as well as others that are more costly. Many of them will walk you through the process step by step. Some also offer templates and worksheets to help you keep track of goals and tasks and gauge timelines.

Some websites to check out include the National Council of Nonprofits (councilofnonprofits.org), The Bridgespan Group (bridgespan.org) and The Foundation Center (foundationcenter.org). Kirsch CPA Group also can review your final plan.

Insurance for Key People

As today’s leaders age and a new generation steps up to the plate, every organization should ask, “Could we continue to achieve our mission without our CEO, CFO, executive director and other key individuals?”

Key person insurance can protect an organization in the event of a sudden death or disability. This type of plan can help ensure that the not-for-profit’s operations and mission are still carried out without major disruptions due to the loss of a key employee.

For example, let’s say the executive director — suddenly disabled by a stroke — had been the not-for-profit’s chief administrator and its primary fundraiser. Temporarily hiring two individuals with these critical skills is likely to be more expensive than the cost of finding a permanent replacement. But key-person insurance proceeds could provide for this while the search is underway.