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Why Tax-Exempt Organizations Should Have Succession Plans

Posted: 11/15/2021

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By Amanda L. Della Sala

Succession planning for not-for-profit and tax-exempt organizations can be a sticky subject. Organizational leaders do not want to broach the subject — for hesitation of giving the wrong impression that departure may be imminent — and boards do not bring it up for fear of insulting current leadership. Despite the initial awkwardness, succession planning is an important topic for tax-exempt organization boards to discuss. It is a risk-management process and one that often gets overlooked until it is too late and an immediate need arises.

Succession planning is the ultimate responsibility of the organization's board, but it can be led by a designated committee with help of the current CEO and other management leaders. 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, including:

Emergency Succession Planning

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. Every organization should have an emergency succession plan in place. This includes 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.

Pre-departure Succession Planning

Pre-departure succession planning 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. This type of succession planning is highly recommended for organizations who have long-tenured key members of management.

A 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. There also 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.

Strategic Succession Planning

Strategic succession planning is the proactive analysis of the organization's future goals and objectives and how best to reach those milestones by supporting and training current management and staff. Strategic succession planning is a natural offshoot of overall strategic planning. It involves open and honest communication between the board and current president/CEO about the organization's future. 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 ensuring the infrastructure is in place to meet those needs.

How Succession Planning Supports Donor Giving

Without a succession plan in place, not-for-profit organizations and tax-exempt organizations 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. Not only is succession planning important for the organization, but is key to overall donor relations 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. Making donors aware of the plans in place when key leadership turns over provides comfort to the philanthropic partners of 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. Tax-exempt organizations should embrace succession planning as an exercise in risk mitigation and welcome the opportunity to plan and prioritize for the future.

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