By Mario O. Vicari, Vicari Advisory LLC
Employee Stock Ownership Plans (ESOPs) are a highly effective strategy for many private companies to transition ownership. They provide a meaningful pathway for owners to transfer stock while offering employees a unique opportunity to become empowered employee owners. It is a win-win opportunity that can fuel a company’s legacy and employee engagement.
However, while ESOPs are sometimes referred to as “succession strategies,” it is important to recognize that succession planning and ownership transition are distinct – and equally vital – processes. Ownership transition is primarily a business transaction. Succession, on the other hand, is the human and organizational aspects of the ongoing leadership development journey. The transaction is an event. Succession is a process.
Many owners understandably focus their energy on the ESOP transaction, but it is essential to also invest to build the leadership muscle to sustain the company’s future. A well-executed succession strategy ensures that the company continues to thrive for years to come — maximizing the value of the ESOP for employees and stakeholders alike.
Here are a few common reasons succession is often overlooked:
- Transaction fatigue – The ESOP process is complex and demanding and often does not allow enough time and attention to handle another complex issue.
- Avoidance – Because a succession plan is not required for the ESOP to proceed, it is often delayed since it is complex and hard work.
- Letting go is hard – Transferring leadership and decision-making is deeply personal. Many owners find it challenging to delegate, which is perfectly understandable.
The good news? Succession planning, though challenging, is achievable — especially when approached with clarity and support. Here are some practical steps to set your succession strategy on the right track:
- Start early – The most successful ESOP companies begin succession planning well before the ownership transition. Give yourself the runway to make mistakes, learn, and adjust.
- Separate the two processes – Treat ownership transition and leadership succession as distinct, each with their own timelines, processes and goals.
- Lean on experts – You do not have to go it alone. There are excellent advisors who specialize in leadership development, succession, and organizational planning.
The ESOP transaction lays a strong foundation for your company’s future. Your succession strategy is the cement that holds that foundation together — ensuring that the leadership of the company is in good hands for continued success and lasting impact.
Mario Vicari is a strategist, advocate and advisor to private and family businesses, and is the Managing Director of Vicari Advisory LLC. Contact: mario@vicariadvisory.com.