Even if a company has a vision, strategy and talent for its succession plan, challenges remain for ensuring it will prosper beyond its current leadership. Distributors share their best practices for succession, from identifying talent to forming new C-suite positions to creating employee stock ownership plans.
Succession planning is easy to define but not always easy to execute. That’s especially true for distributors, who routinely list it as a pain point for their own businesses, as well as for the industry, because of an aging workforce and growing talent gap. Beyond creating a vision and strategy, and then working to attract and retain talented employees as outlined in Part 1 of MDM’s look at succession planning, distributors must incorporate succession planning into their culture.
When electronics distributor Arrow Electronics Inc., Centennial, CO, last year named Andrew Bryant as COO of the company’s global components and global enterprise computing solutions businesses, company President and CEO Michael Long mentioned succession planning as part of the reason for the appointment. It remains top of mind for the company, which hosts annual talent workshops where department managers identify high-potential employees for promotion.
“The critical element of succession planning, historically, is continuity,” says Donna Tikkanen-Davis, Arrow’s vice president, human resources, global employee capability. “I think the new element of succession planning and management is attracting and retaining talent.”
Graybar, St. Louis, MO, also works throughout the year with managers and senior leadership as part of the distributor’s “people strategy,” which is designed around the identification and development of talent within its ranks.
“We make sure we’re all working together on the same page to identify who our talent is and help all our employees grow within the organization,” says Beverly Propst, the company’s senior vice president, human resources. “Having a good assessment of your talent is so important.”
The process of identifying and grooming candidates for C-suite positions should begin early, according Bob Mucciarone, recently appointed to the new position of COO at F.W. Webb Company, Bedford, MA.
“Companies should assess their strengths and weaknesses in the sales function and operationally, and to evaluate both these aspects in terms of their organizational chart,” he says. “Once the review is completed, companies can begin the employee training process to bring along their key performers. It all starts with early training and placing employees in positions where they can excel and move up in the organization.”
Some companies have made succession planning such a high priority they create positions to ensure it occurs. Earlier this month WinWholesale named Matt Newcomer as director of talent acquisition and succession planning to “recruit and groom future leaders and entrepreneurs who will get the opportunity to run a distribution business,” says Corporate Communications Manager Maury Williams.
The appointment underscores the Dayton, OH, distributor’s aim to build on the success it saw in 2014 with double-digit revenue growth by opening more locations and adding employees.
“Succession planning is a prudent step and Matt will take an active role in making sure we identify and prepare the right people to move into key positions, both at local companies and at corporate,” Williams says.
While replacing a CFO who retired after decades, developing a high-potential employee before she bolts for a competitor or appointing a new president because the last one died unexpectedly can seem to be daunting tasks for a company otherwise absorbed with expanding market share, adding products or deciding where to build its next distribution center, these moves are essential to any company’s long-term prosperity.
“I’ve never met a business leader who doesn’t say that people are critical to their business,” says Graybar’s Propst. “Sometimes they will even say people are the most important part of their business. We certainly believe that people are the most important part of our business, and if that’s the case, succession planning is not something you would want to leave to chance.”
That means not waiting until the last minute – a resignation, retirement or even untimely death – to find a successor but instead actively seeking talent at all times, says Emily Saving, vice president of professional and program development for Heating, Air-conditioning & Refrigeration Distributors International, which advises members to begin succession planning if they haven’t already. Saving suggests that companies
develop a process for filling the pipelines of all positions, assess its current bench strength and create a road map to address turnover.
“You need to always be on the lookout for talented people and always figuring out who’s next to fill those gaps,” Saving says. “It requires a precision focus on the future.”
Owens & Minor Inc., Richmond, VA, recently displayed that focus on the future when the company’s board of directors announced a search to replace retiring President and CEO James L. Bierman. The board said Bierman informed it of “his own horizon for retirement and asked that a search for his successor be initiated.”
“Transitioning from one leader to another is a significant event for any company, and we believe it is vital that we identify the right person to lead Owens & Minor into the future,” Bierman said. “In looking ahead, I recognized that this executive leadership transition could take a significant amount of time. Therefore, I thought it was appropriate to begin the process now, in order to ensure a seamless transition.”
But with distribution executives citing a talent gap in the industry, a seamless transition might seem unattainable, says John Salveson of Salveson Stetson Group. That may mean looking outside of the industry for the right person, something his firm always does when it conducts a search for a senior-level wholesale distribution position.
“There are other areas that have done a better job of developing people,” Salveson says. “There’s a lot of people in (wholesale distribution) leadership roles who have been there for a long time, really are experts in the company for which they work, may or may not have a family connection or ownership connection, which makes them people who are not going to move. It would be very rare for us to present a slate of candidates for wholesale distribution role that doesn’t include people from outside that sector.”
Smaller, family-owned companies must be especially mindful of their succession needs, which might be centered on talent acquisition and retention but also include strategies beyond replacing an outgoing executive with another. One option is selling to a private equity firm or a competitor. Consolidation is an ongoing theme in distribution and manufacturing, and divestment could be the right exit plan for companies that aren’t concerned with legacy, don’t have offspring to take over or simply want to cash out.
Another option is an employee stock ownership plan (ESOP), in which the owner sells shares of the company to its workforce, something cfm Distributors, Kansas City, MO, implemented 15 years ago. President Tom Roberts said the plan hinges on paying attention to three components – ownership, leadership and tasks – while also making sure the stakeholders carefully consider the desired outcome for the company and the options that will help them achieve it.
“A leadership succession plan is more than placing a name in a slot,” Roberts says. “It is the development of necessary skills to accomplish the required tasks, learning to listen and communicate with staff, vendors and customers to develop solutions, constantly accessing strategic opportunities and threats, while all the time charting a course to success for all. None of this is possible for the successor leaders without organizational support, for the buy-in of the lead is more important than the skills of the leader.”
No matter what the succession plan looks like, Propst says focusing on a few basics – “knowing who your top talent is, what kind of skills you need in your organization today and what you think you’re going to need in years to come” – will pay huge dividends.
“If you take that information, process it and put together a plan so that it all comes together at the end, you’ll be well-invested for the future,” she says. “It doesn’t need to be a complicated process, but it does need to be something that you pay attention to.”