5 D’s of Succession Planning

Life is unpredictable. Thus, a business needs to plan with contingencies since this unpredictability can crucially impact its future. This is even more critical in the context of succession planning. It is here that the 5 D’s are measured as potential risks to a business’s future.

The 5 D’s: Death, Disability, Divorce, Disagreement, and Distress, can often lead to disruptions in business planning, especially if they impact the leadership or key employees. This blog focuses on how to be contingent on the 5 D’s when developing succession strategies.

What Are the 5 D’s of Succession Planning?

The resilience of a business often depends on its capability to expect the unexpected. To develop this capability, many businesses have tailored their strategies to the 5 D’s of life-altering events that can impact the businesses’ future:

• Death
• Disability
• Divorce
• Disagreement
• Distress

When considering succession planning, a resilient business will ensure that all of these factors are taken into consideration. These have become critical in succession planning, leading to the factors being commonly referred to as the 5 D’s of succession planning. 

And, poor succession planning can cause major harm to the business. According to a 2021 Harvard Business Review study, poor leadership succession costs in the USA’s S&P 1500 index nearly US$ 1 trillion of stock market value per year. This is something that businesses in the UK also need to factor into their strategies. 

Now, let’s look at all 5 factors individually:

Death – Preparing for the Inevitable

Death is inevitable. How or when you die is not something one can be aware of beforehand. Ideally, it would be at the very end of a long, fulfilling life. But when it comes to preparing your business for your death, proper planning is required against the unexpected.

So, here is why and how to implement succession planning with this condition in mind:

• The sudden death of a key business leader can lead to uncertainty. This leads to delays in key decisions, stalling of projects, and harm to day-to-day activities. The suddenness here is further harmed by the absence of a contingency plan.
• If death is caused by a long-term illness, it can lead to financial losses, depletion of employee morale, and potential legal challenges. However, in this case, the impact is less sudden, and the contingencies can be planned accordingly. 

Studies have indicated that the survival rate of companies falls by approximately 20% two years after a leader’s death. Thus, while a morbid concept, preparing for the event of a business leader’s death is necessary for a business. 

Disability – Planning for Temporary or Permanent Inability to Work

Many disabilities, due to health challenges or sudden accident/injury, can lead to a leader or a key employee becoming temporarily or permanently unable to work or make decisions.

The disability rendering the leader unable to perform the key decision-making functions leads to decision-making paralysis and a leadership vacuum. This absence can also affect employees by deterring their morale and efficiency. 

In the case of a physical disability, the leader may still be able to take part in the decision-making process, with key inputs. However, in such scenarios, the leadership vacuum can still be felt. 

Divorce – When Personal Matters Impact Business

The divorce of a company’s owner or leader can impact its business and people with stakes in the company. The first major issue to consider here could be distraction. Divorce proceedings can keep the leader distracted from the business’s aspects, hampering executive control and decision-making. 

Also, in the case of a business owner, a divorce can lead to the division of assets between the parting spouses, which can lead to a disruption in the business’s financial status. 

A divorce settlement can also be an expensive aspect. A CEO might want to make back the losses by taking major business risks. On the other hand, to avoid further losses, the CEO might also become too risk-averse, making immensely safe decisions that do not pay off. 

As per an ONS report, 80,057 divorces were granted in the UK in 2022. Such a statistic implies that divorce should be a major contingency when considering how to implement succession planning​.  

Disagreement – Internal Conflict Among Partners or Heirs

Partnership disputes can have highly damaging effects on companies. Hostility between partners can create a negative work environment, which also hampers the productivity of the employees. 

Alternatively, conflict between partners created due to misconduct can harm a company’s reputation and its competitive standing, leading to the possibility of dissolution. In the case of a family business, the same can be observed in the conflict among heirs. 

Also, 51% of HR workers, according to a CPP Inc. study, have reported spending one to five hours managing conflicts weekly. Thus, managing disagreement is an essential factor to consider among the 5 D’s of success.

Distress – Financial or Operational Business Challenges

Among the 5 D’s of succession planning, distress might be the most common and critical factor to observe. How so? This is because the effects of financial or operational challenges in a business are immediate and can have long-standing, harmful impacts. 

Financial or operational challenges in a business can lead to:

• Workflows are slowing down, increasing lead times, and bottlenecks in the delivery of expected services.
• Workforce inefficiencies, increased errors, and wasted resources further facilitate higher operational costs.
• Negative customer experiences due to a company’s operational issues cause reputational harm to a business. 
• Financial challenges involve the reduction of company output and can lead to a drop in earnings. 

According to the Guardian, approximately 540,000 UK companies were facing immense financial distress in 2024, higher by 13% compared to the third quarter of 2023. Thus, when asked what should succession planning include, distress is a significant aspect.

How to Formulate Succession Strategies in a Chaotic Time

What should a succession plan include when preparing for the event of a leader’s death, disability, divorce, disagreement, or distress? 

First, it is important to determine which positions are crucial and in need of a succession plan. Secondly, a clear plan needs to be in place regarding who will take over the leadership roles following any unfortunate event. And finally, the plan needs to safeguard the successor from becoming a victim of a distressing condition. 

A clear succession plan needs the following:

1. Understanding which candidate is best suited to the role should include both internal and external members.
2. Identifying and grooming the chosen successors to ensure that they are ready to take up the mantle and handle the transitory period. 
3. Evaluating the immediate pressure points in the event of the leader’s long-term absence.
4. Focusing on maintaining the decedent’s legacy, to understand the long-term values of the business. 
5. Maintaining a buffer period due to grief, slowing down decision-making procedures, especially in the case of death. 
6. Identifying and maintaining a suitable taxation strategy. This will allow the successor to take up the position without a major financial burden. 
7. Evaluating a roadmap for dispute resolution and management of disruptions in distress situations. 

Why Planning Matters

“How does succession planning work?” This question cannot be answered without understanding why succession planning is relevant.

Succession planning is becoming crucial to modern businesses, especially due to the understanding that we work in uncertain situations. And our business should survive even after we are gone. 

A succession plan also has a positive impact on employee engagement. A staggering 94% of employers, as per a 2015 Hireology study, have reported on the increased employee engagement due to having a succession plan. 

Therefore, succession planning is essential not only to help a smooth transition of leadership in any unfortunate situation, but also to ensure that the workforce does not suffer, harming the overall business.  

Putting It All Together: A Proactive Approach to the 5 D’s

So, how does succession planning work effectively when the 5 D’s are incorporated into a business’s plans? A proactive approach that understands how each of the 5 conditions needs to be maintained, as well as a succession plan covering all contingencies, can come together to help the approach work. 

Here is a chart explaining how proper proactive succession planning can turn the 5 D’s into 5 D’s of success:

Table: The 5 D’s and the most suitable strategies

Final Thoughts

Modern businesses operate with a consideration of an uncertain world. Thus, succession planning needs to be a contingent strategy that is undertaken with a focus on the 5 conditions of death, disability, divorce, disagreement, and distress. 

Thus, a business will be ready to handle any disruptive scenario, ensuring that the appropriate plans are in place. 

Start Your Contingent Succession Planning 

If you are a business owner wanting to ensure long-term business success, you have to keep in mind that plans need to be in place for the day you can no longer offer your best to the company. So, look into the 5 D’s and develop an appropriate succession plan accordingly.

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