By Andrew Bahlmann
Human capital—the knowledge, skills, and expertise of an organisation’s people—is one of its most valuable assets. Unlike physical or financial capital, human capital is uniquely dynamic, growing and evolving with experience, training and leadership. It plays an enormous role in a company’s valuation.
This intangible asset drives innovation, productivity, and competitive advantage, making it essential to a company’s sustainable growth and long-term success. However, human capital, like any form of capital, requires thoughtful management and planning to retain and grow its value over time. Succession planning is the cornerstone of this effort, ensuring that an organisation not only preserves but also enhances its intellectual and leadership resources through multiple generations.
By proactively preparing for transitions, businesses can avoid the disruptions that might arise from sudden leadership gaps and can foster a culture of continuous growth and stability, positioning the company to thrive well into the future.
Succession in publicly-owned companies
Listed companies are required by law to follow corporate governance standards and disclose their succession planning efforts to the public. Boards are accountable to shareholders, and leadership changes can impact stock prices. Consequently, listed companies tend to have rigorous, documented succession plans that outline who will take on leadership roles and how the transition will be managed. The process of selecting a successor, therefore, heavily considers how the choice will impact shareholder value, company performance and market perception.
Furthermore, succession plans are often under scrutiny from analysts, shareholders and the media. The disclosure of leadership transitions can significantly impact share price. A smooth and well-communicated transition can boost investor confidence, while uncertainty or poor planning may result in market volatility. Because of this, listed companies may take a conservative approach to succession planning, rather choosing internal candidates who understand the company culture and operations over outsiders.
Public companies often have formal leadership pipelines, identifying high-potential leaders early on and preparing them for key roles. This is an ongoing investment in talent development that aims to avoid disruptions and reassure stakeholders that the company’s future is in capable hands.
Succession in privately-owned companies
In privately-held businesses, succession planning is often more flexible but can be more challenging due to personal and family dynamics, especially in family-owned businesses where succession is often more personal. For instance, the owner may have founded the business, making the transition not just a matter of leadership but of personal legacy.
Family dynamics, personal preferences and loyalty can heavily influence the selection of successors, often more so than strict business considerations. The owner’s primary concern is often about maintaining their legacy rather than purely focusing on maximising shareholder value, although the two can be aligned.
They are not required by law to disclose succession plans to the public or follow strict governance regulations. This flexibility allows private companies to plan succession on their own terms, and they can pivot or adapt more readily as situations change. However, the lack of external oversight can sometimes lead to delays or incomplete planning, as there is less pressure to formalise the process.
Owners often want to ensure that they can eventually sell the business or pass it on smoothly to heirs. A clear succession plan is crucial here because, unlike in a listed company, where a diversified board and management team can often sustain value, a private company’s value is heavily influenced by the leadership stability and continuity perceived by potential buyers or investors.
Without the external accountability that listed companies have, privately-owned companies might not have a structured leadership pipeline in place. In these cases, succession often involves identifying a single key person or a small team from within the organisation, or even hiring an external leader. This can be challenging in markets where highly skilled leaders prefer the visibility and potential upside of leading public companies. However, private companies can offer more direct influence and potentially more personalised incentives, which can help attract key leadership talent.
In public companies, succession is viewed through the lens of share price, market perception, and regulatory compliance. For private companies, succession has a direct impact on business valuation during a sale or transfer and is often more personal, focusing on preserving the owner’s legacy and creating long-term value.
Listed companies prioritise transparent communication with investors, employees, and analysts to manage expectations and avoid market volatility. In contrast, privately-owned businesses have more control over how and when they communicate succession plans, focusing instead on maintaining key client and employee relationships.
In both types of businesses, a well-executed succession plan ensures that the business will continue to thrive beyond the current leadership. For listed companies, this means steady shareholder returns and stability in stock prices. For privately-held businesses, it often means a seamless transition that preserves the business’s legacy, maximises value in the event of a sale, and secures the owner’s exit.
Regardless of the structure, the ultimate goal is to align succession with the strategic priorities of the business and ensure a successful transition that protects and builds upon the value already created.
Andrew Bahlmann, CE Corporate and Advisory, Deal Leaders International
BUSINESS REPORT
