Grooming successors.

• Author: Heffes, Ellen M.
• Position: Succession Planning

Succession planning is essentially about business continuation and people. While middle-market and family-owned businesses are often lax about formalizing plans, CFOs around the U.S. are taking it upon themselves to groom their successors.

When there's talk about replacing the U.S.'s oldest and longest-serving chairman of the Federal Reserve, Alan Greenspan, you know it's inevitable that one day you, as CFO, are going to be replaced. And, just as jitters surround replacing an icon, like Greenspan, your firm's performance could be greatly impacted by how its succession plan is handled.

The purpose of succession planning is to ensure business continuity following a leader's retirement, death or -- often these days -- a myriad of other unplanned reasons. Ideally, succession planning is a "formal" and ongoing process of systematically identifying, assessing and developing talent to fill vacancies both from within a company and appropriate external talent sources.

Sound like the system in your company? If you're a large corporation, it probably is the case; if you're a mid-sized company, you may be in the 50 or so percent with formal succession plans; and if you're a smaller, closely held or family-owned business, you're likely too busy working to plan for your successor. While most businesses have a crisis "hit-by-a-truck" plan for short-term replacements, the fully developed transitioning process from leader to leader can be daunting, be it in a multinational or family-owned business.

In his 2001 book, the former CEO of General Electric Co., Jack Welch, wrote of choosing his successor: "Making the pick was not only the most important decision of my career, it was the most difficult and agonizing one I ever had to make. For at least a year, it was often the first thing I thought about each morning and the last thing on my mind at night."

Welch approached the selection process with four criteria. He wanted his successor: to be GE's unquestioned leader; to take the politics out of the process; to be young enough to be in the job for a least a decade; and he wanted the board involved in the decision.

Insurance giant American International Group Inc. announced this past May that it had put a succession plan in place for its highly visible chairman and CEO, Maurice R. "Hank" Greenberg. AIG promoted 10 senior executives and indicated that almost any one of them could nab the top spot, a move analysts said would ease investor concerns over who will succeed the popular 77-year old Greenberg.

Just how significant is grooming a successor? In a nationwide study of the largest 1,000...