Succession planning brings stability and peace of mind
By Nick Fortuna
Successful independent hoteliers built their businesses on their willingness to go the extra mile, whether it’s for guests, employees, or the reputation of their properties. But what happens when hardworking hoteliers are no longer around to provide expertise and elbow grease in equal measure?
Without a succession plan in place, independent hoteliers are putting the future of their properties, their family’s finances, and their personal legacy at risk. Retirement may seem a long way off, and no one wants to think about dying or becoming disabled, but with multimillion-dollar assets at stake, it’s vital that independent hoteliers plan for whatever may come next, according to Alice Sherman, managing director for the Americas at HVS Executive Search.
“Without a plan, companies face leadership gaps, operational instability, and a loss of investor and employee confidence at precisely the moment stability matters most; for example, during a sale, refinancing, or major expansion,” Sherman said. “It also increases the likelihood of rushed, suboptimal hiring decisions that can damage long-term performance.”
Independent hoteliers don’t have the safety net of a brand’s corporate bench or training programs, making proactive succession planning more critical, Sherman said. A clear plan protects the day-to-day operations and enterprise value of hotel properties, and it provides reassurance to lenders, investors, and employees that leadership transitions will be handled deliberatively rather than reactively, she added.
A well-thought-out succession plan names a replacement to lead the company and may establish a timetable for that transition, such as a targeted retirement date. It signals to talented executives that the company is serious about their development and advancement, which incentivizes them to remain with the company, Sherman said. Plans should outline key leadership roles, identify and assess internal talent, and define developmental paths to prepare prospects to step up.
A good succession plan spells out who will fill essential roles in an emergency and whether a hospitality company will conduct external searches for permanent replacements. Leadership teams should meet regularly to discuss the strength of their bench, and they should give future leaders a chance to prove themselves through cross-functional projects or special assignments.
Seeing how employees handle increased responsibility can help hoteliers identify the best candidates to take over. In evaluating potential leaders, the most effective companies use a blend of objective data – such as profit-and-loss statements, employee retention, and growth figures – and informed judgement, Sherman said. Factors such as values alignment, resilience, and leadership style should be combined with hard data to form a complete picture of likely successors.
“This combination of evidence and insight lets decision-makers feel confident that successors will not only perform but also fit the culture and future direction of the company,” she said.
Establishing a Depth Chart
In forming a succession plan, most people naturally think of the chief executive and chief operating officers, but a thorough plan goes deeper, Sherman said.
“It should map out successors for finance, sales, and marketing, HR and talent, supply chain, and operations leaders whose departure could materially affect company performance,” she said. “This ensures continuity across both customer-facing and infrastructure functions.
“When paired with leadership development, succession planning creates a pipeline of executives who understand both guest service and business strategy,” Sherman continued. “It turns succession from a one-time event into an ongoing investment, cultivating leaders who can carry the company’s culture and standards forward while innovating for the future.”
One of the principal benefits of succession plans is that they make hoteliers’ intentions clear and help to prevent family disagreements, according to Pooja Mehta, managing attorney for San Diego-based DPA Attorneys at Law.
In cases where multiple adult children are involved in the family business, succession plans eliminate the risk of a power struggle. And in cases where no adult children want to run the business, a succession plan should clearly spell out what’s next, whether that means selling properties or hiring a third-party management company.
Through succession plans and estate- planning documents such as wills and trusts, hoteliers can ensure that their wishes are honored after they’re gone, Mehta said. For example, a hotelier may want a successor to be free to sell a property at any time, or the hotelier could require the approval of other family members.
Similarly, a successor may be required to show up in person and handle day-to-day operations or may be allowed to hire a third-party management company. The hotelier also may dictate whether properties must remain independent or whether the successor is free to convert hotels into branded properties. After waiting in the wings for a while, successors may have their own ideas for taking the business to the next level, and a succession plan can either limit or encourage those ambitions.
Before drafting succession plans, Mehta said her firm has hoteliers fill out a lengthy questionnaire addressing a wide range of possibilities, including what to do if the person designated as a successor isn’t available to take the helm. Since succession plans may not kick in until several decades down the road, it may be necessary to name a series of potential successors.
“A succession plan should make it clear what exactly the owner is expecting of the next person in line and what powers that person has,” Mehta said. “Those are key things that need to be considered and included in a succession plan.”
Protecting the Next Generation
Sherman said a well-structured succession plan can separate ownership from management, set clear expectations, and provide for professional managers if adult children opt not to join the company.
“This preserves family equity and influence through boards or trusts while ensuring operational continuity under capable leadership,” she said.
Without a succession plan and estate-planning documents, family disputes could have to be settled in court, which can take several years, said Mehta. During that time, operational disruptions, the loss of institutional knowledge, and a lack of management expertise could lead to significant declines in hotel performance, lowering their value.
In executing a succession plan, it’s common for the hotelier to retain ownership of the property while handing over operational duties to the next generation. The actual transfer of ownership typically occurs through estate planning, which is why those documents are an important part of a comprehensive succession plan.
Through proper planning, hoteliers can avoid emergency sales in a down market because no one is prepared to handle operations. Poor estate planning also can trigger large capital-gains and inheritance taxes, erasing years of wealth creation by hoteliers.
“Succession planning is important because we’re usually dealing with millions of dollars of assets,” Mehta said. “That’s really the importance of succession planning – to protect your assets when you’re not here.
“Having a frank conversation with adult children will help to determine how the plan is written,” she added. “If the children don’t want to be involved in the business, then the succession plan should reflect that. There’s no point in naming children to be next in line when they’re not interested. On the flipside, perhaps multiple children want to be involved, but they can’t agree on who should be next in line. These are all conversations that should happen in advance of drafting a succession plan.”
Whereas estate-planning documents may be allowed to collect dust in a desk drawer, succession plans should be revisited periodically to ensure that team members are making progress in preparing for leadership roles, Mehta said. Succession plans can change according to business dynamics, personnel departures, and other factors, so it’s important that hoteliers keep them up to date.
“Unfortunately, I don’t see enough hoteliers instituting a succession plan,” Mehta said. “Many hoteliers don’t want to think about it, don’t want to broach the subject with their children, or just don’t feel that they have enough time to go about it. But I do feel that hoteliers need to put a greater emphasis on having a written succession plan so that everything is clear for all parties involved. It helps those who are next in line to start planning for their future.”
Image: feng/stock.adobe.com
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