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Tax-Exempt Organization Boards Should be Discussing Succession Planning

Succession planning for tax-exempt organization (TEO) leadership can be a sticky subject. Organizational leaders do not want to broach the subject thinking it gives the impression that their departure is imminent and boards don’t bring it up for fear of insulting the current leadership team. Despite the initial awkwardness, succession planning is an important topic for TEO boards to discuss. It is a risk management process and one that often gets placed on the back burner until the immediate need arises.

All succession planning is the ultimate responsibility of the organization’s board but can be led by a designated committee with the help of the current CEO and other management leaders. It is good governance practice for the board to evaluate their organization’s leadership and actively plan for the future. Boards that have successfully implemented succession plans understand that these initiatives ultimately affect community perception, donor confidence, and the bottom line.

Succession planning can take on multiple forms. Emergency succession planning is a plan put in place for the sudden and unexpected departure of key members of leadership often due to illness, disability, or death is one example. The second form is pre-departure succession planning. This version occurs when an organization has a long-standing key member of leadership with a known retirement or exit date in the not too distant future. Lastly, there is strategic succession planning. This is the proactive analysis of the organization’s future goals and objectives and how best to reach those milestones by supporting and training management and staff currently in place.

Every organization should have an emergency succession plan in place. This will include a written document that dictates tasks and responsibilities in the event of an unexpected departure. Matters to consider include signing authorities, relationships with donors, and key processes that need to be redeployed to keep the organization functioning. It should clearly state the new internal lines of authority and include a detailed communication plan with external stakeholders. The creation of an emergency succession plan often leads to discussion and creation of the other succession plans detailed below.

Pre-departure succession planning is highly recommended for organizations who have long-tenured key members of management. Known departure of a member of leadership should be used as a catalyst for reflection on where the organization is and its vision for the future. Boards should work with the exiting member of management to determine the skills desired in a successor and what tools will be provided to the incoming leader to ensure their personal and organizational success. There should be a formal onboarding process for the new leader to learn from the exiting leader ensuring no institutional knowledge is lost in the process. The goal is to ensure a successful and purposeful transition to the new leadership.

Strategic succession planning is a natural offshoot of overall strategic planning. It involves open and honest communication between the board and current CEO about the future of the organization. Identifying emerging leaders within the organization is an important first step to retaining and developing that talent. In this scenario, the board assesses the current organizational competencies so that it can provide the necessary training to optimize the capabilities and improve on weaknesses of those already within the organization. It is important to acknowledge that it is not done for the purpose of naming a successor. It is the process of evaluating the health of your management team and its future potential for a smooth leadership transition. It is a proactive approach to anticipating the needs of the organization’s future and ensure the infrastructure is in place to meet those needs.

Succession planning may seem like a distant need, especially for organizations with newly appointed leadership. However, without a succession plan in place, TEOs are often caught off-guard and become reactionary out of need. This can lead to significant delays in initiatives and mission-based work as staff and the board is focused on filling the immediate gap in leadership. One significant matter to support creating a succession plan is that this is important to donors. Often, key members of leadership are the main contact for an organization’s largest donors. Donors need to feel comfortable with the representative from your organization and confident in the organization’s future viability. Bringing in a back-up contact for these donors and making them aware of the plans in place when key leadership turns over will give them the comfort they need to remain philanthropic partners to your organization.

Organizations who are serious about their sustainability will give considerable thought to succession planning. Being caught unprepared for turnover in leadership positions exposes an organization to unnecessary risks and challenges. It can lead to confusion and chaos at the board level, among the management team and staff, and with donors and the community at large. TEOs should embrace succession planning as an exercise in risk mitigation and welcome the opportunity to plan and prioritize for the future.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.