Warning: Overlooking this secret drill could destroy your business!

ILLUSTRATION BY RUTH MACAPAGAL

There’s an uncomfortable reality that most companies overlook: What happens if the key leader, whether the business owner or CEO, suddenly passes away or becomes incapacitated? The answer to this question can determine the survival or downfall of your entire organization.

Why this drill is crucial

Imagine the chaos that would ensue if the leader of your organization were suddenly unable to perform their duties. Without a clear, written plan—often referred to as a “fire drill”—the business can find itself in a state of disarray, with employees uncertain about their roles, stakeholders losing confidence and critical decisions delayed. It’s an unfortunate truth that most companies neglect this essential preparation, mistakenly believing that such an event is unlikely or that they will have time to respond when the time comes.

However, the reality is far different. The sudden loss of a key leader can trigger a crisis that ripples through the entire organization. Without a predefined plan, the business risks operational paralysis, loss of market share and even potential collapse. This makes the “fire drill” not just a theoretical exercise but a practical necessity.

We have a lot of stories from clients where the next in line had to jump into cold water because the key man or woman suddenly left, died, or became incapacitated. When they call us to ask if my team and I can help, our first reply is, “Yes, we can! But you should have called us earlier.”

How overlooking this drill can destroy your profits

I recall one of my own experiences advising a Middle Eastern family business, which was the birthplace of three major globally recognized brands. This was a large family with numerous siblings, but the business was effectively run by one brother, who kept the rest of the family in the dark about the company’s operations. He surrounded himself with a board of executives—hired guns who operated in isolation from the rest of the family.

When this leader died unexpectedly, the business was plunged into chaos. The family members, who had only been receiving dividends without any insight into the actual business dealings, suddenly found themselves lost. The absence of a fire drill meant that no one had a clear understanding of how the business operated or what steps needed to be taken to ensure continuity.

In the meantime, the top executives saw an opportunity and began to indulge in lavish expenses, including company jets, with no oversight. Sadly, the family reached out to me and my team to solve this mess only after the chaos was already in full swing. During many months, significant financial damage had occurred, including instances of fraud.

This situation highlights the vital importance of having a solid fire drill in place and ensuring that the owner is transparent about what should happen in the event of their untimely demise.

6 practical steps to implementing a fire drill

1. Establish a clear succession plan: Begin by identifying potential successors for every critical leadership role in the organization, not just for the CEO or owner. This should include a thorough assessment of internal talent as well as external candidates who could step in if necessary. The succession plan should outline who would take over each role, the timeline for the transition and the specific responsibilities they would assume. Make sure to include interim leadership options in case a permanent successor is not immediately available.

2. Document critical processes: Every key business process should be meticulously documented. This documentation should include step-by-step guides, key contacts, access to essential systems and any relevant legal or regulatory information.

3. Create a crisis management team: Assemble a cross-functional crisis management team that is well-versed in the fire drill plan. This team should include senior executives, legal counsel, communications specialists and key operational leaders. Their roles and responsibilities in the event of a crisis should be clearly defined.

4. Communicate with key stakeholders: Transparency is crucial when it comes to preparing for unexpected events. Regularly communicate the existence of a fire drill and the steps involved to key stakeholders, including board members, employees, investors and major customers. This communication should emphasize the company’s commitment to continuity and reassure stakeholders that the business is prepared for any eventuality.

5. Run regular drills and simulations: Conduct regular fire drill simulations to test the effectiveness of your plan. These drills should simulate various scenarios, such as the sudden loss of the CEO, a major natural disaster, or a cyberattack and evaluate how the organization responds. Use these drills to identify weaknesses in the plan, areas where the response was slow or ineffective and opportunities for improvement. After each drill, debrief with the crisis management team to discuss what worked, what didn’t and what changes need to be made.

6. Review and update the plan regularly: The business environment is constantly evolving, and so are the risks your company faces. Set up a regular schedule—at least annually—to review and update your fire drill plan. This review should take into account changes in the business, such as new leadership, acquisitions, changes in market conditions, or new regulations. Additionally, consider conducting an external audit of the plan every few years to get an objective assessment of its strengths and weaknesses.

Leveraging outside consultants and experts

If you have trouble implementing any of these steps, you are not alone! While the concept of a fire drill is straightforward, its implementation can be complex, especially for large organizations or family businesses with intricate dynamics.

This is where the expertise of outside consultants and specialists becomes invaluable. Experienced consultants bring a wealth of knowledge, best practices and an objective perspective that can significantly enhance the effectiveness of your fire drill plan.

Outside consultants can provide an unbiased evaluation of your current processes and identify gaps that internal teams might overlook. Consultants with experience in this area can guide you in developing a robust succession plan that includes leadership development, mentoring programs and contingency plans. Consultants who specialize in crisis management bring tried-and-tested strategies to the table. One of the significant advantages of working with outside experts is their exposure to best practices across industries and around the world.

Especially in family businesses where emotions and personal relationships can complicate matters, an external consultant can facilitate discussions, providing a neutral ground where sensitive topics can be addressed openly and constructively. INQ

Tom Oliver, a “global management guru” (Bloomberg), is the chair of The Tom Oliver Group, the trusted advisor and counselor to many of the world’s most influential family businesses, medium-sized enterprises, market leaders and global conglomerates. For more information and inquiries: www.TomOliverGroup.com or email [email protected].