Bridging the Leadership Gap: Succession Strategies For Future-Proofing Organizations

March 3, 2025 – Succession planning is a crucial component in shaping an organization’s future, as it directly impacts hiring practices, talent development, and overall long-term success. By ensuring a strong leadership pipeline, organizations can foster growth, maintain stability, and drive continued prosperity. Suzanne Heske, head of SPMB’s investment practice, shares her insights around succession strategies based on her and her team’s experience partnering with hundreds of investment managers as they future-proof their leadership and organization. While she reinforces the significance of prioritizing succession planning for organizations at all stages of growth and maturity, Ms. Heske also suggests taking action sooner than one may think.

Part 1: Succession Challenges

What’s the Problem?

“When it comes time to step away or to plan for a transition, limited partners (LPs) are asking for and monitoring future succession planning to ensure the protection of their investments and to mitigate key person risk,” Ms. Heske said. “We most commonly see investment firms with a single founder (or two founders) experience succession challenges more frequently than firms with multiple leaders. Usually founders operate as both managing partners and CEOs; this creates particular difficulties when they move on at both firm and investment levels. If the founder(s) also serves as head of the investment committee (in a formal or informal capacity), the investment team and portfolio may feel a gap when s/he moves on.

Succession Strategies: Options To Consider

What is an investment firm to do when faced with this organizational challenge? There are several approaches a firm can take when transitioning leadership roles, according to the SPMB report. “One option is to convert an existing general partner into a chief investment officer while hiring or promoting another GP to take on the role of CEO or managing partner,” the report said. “In many cases, firms opt for a co-CEO structure to facilitate a smooth transition over several years, allowing founders to remain engaged—whether actively or in a more limited capacity. This gradual shift helps ensure continuity and stability during the leadership change.”

“Another approach the report points to is to implement a structure where co-managing partners or GPs oversee different products, strategies, or geographical areas,” Ms. Heske said. “For example, in crossover funds, it is common to see a managing partner for privates and a managing partner for public investing, each responsible for their respective investment strategies. This division of leadership ensures specialized oversight and a clear focus on different areas of the business.”

A third option is to promote or hire an experienced ex-operator to lead the company while also serving as an investment partner, the SPMB report explained. In this model, the firm can also promote or hire a sitting investor to focus on interactions with LPs and maintain business continuity. This approach combines operational leadership with investment expertise while ensuring strong relationships with LPs.

“Regardless of the direction a firm chooses, leadership assessment is critical,” Ms. Heske said. “For investment managers, evaluating key criteria is essential when assigning future roles and responsibilities to ensure long-term success and strategic alignment.”

Leadership Assessment — Key Criteria

Investment Criteria/LP Relationships:

• Does s/he have exposure and a history of fundraising and interfacing with LPs?
• What is the demonstrated deal history/performance of this future leader?
• Does s/he have realized returns versus paper markups?
• Does this person have demonstrated deal flow, relationships with operators and founders, and networks with co-investors?

External Facing:

• Could this person be the external face of the organization?
• Is this person considered a thought leader in his/her ecosystem?
• Does s/he possess the gravitas to “replace” an existing GP(s)?
• Do founders, investors, and operators generally champion around her/him?

Internal Facing:

• Is this person a “culture carrier” of the existing organization and can s/he inspire employees?
• Does this person have the skills to be an “operator” within the organization?
• Does s/he have prior operating experience?

Culture:

• Define existing culture — what drives decision making and leadership outside of superior fund performance?
• How do people relate to each other to maximize investment outcomes? Is this key to future success?

Related: Creating an Impactful Succession Plan

• What are preferred relationship and engagement levels with LPs?
• How do we train, mentor, and promote employees?
• People philosophy: do we hire “up-and-comers,” or proven executors?
• Diversity initiatives: including hiring ex-operators, founders.

Part 2: How to Succession-Proof

A winning leadership strategy demands careful implementation. Ms. Heske offers the elements that are critical for success.

Secure Your Company’s Future with a CEO Succession Plan

CEO succession planning is a critical yet often overlooked aspect of long-term business success. As leadership transitions become more frequent, organizations must proactively develop strategies to ensure stability and continuity. In a recent report, DHR Global’s Justin Menkes highlights the importance of a structured approach to CEO succession, offering key insights on best practices and the benefits of early planning.

SPMB’s 8 Points for Successful Implementation

1. Ensure founder/managing partner/senior executive owns the plan and has a genuine interest in turning over leadership to ensure a legacy once s/he has departed.

2. Identify or create a “key functions/roles” map.

3. Assess current employees’/team’s skills.

4. Arrange internal training or external coaching to develop internal talent.

5. Hire externally to backfill missing skills at the leadership level.

6. Confirm LP commitment to strategic plan and comfort with internal promotions and potential external hires.

Related: Seven Steps to Successful CEO Succession

7. Share succession plan with the next generation of leaders; communicate transparently about opportunities for their growth during transition and expectations around individual roles.

8. Review the plan annually to ensure it remains relevant and firm leadership is aware of any changes.

Part 3: Other Considerations — Leadership Skills to Value

“Another way to approach the leadership transition is to consider the key criteria and combined skills that will enable the next tranche of leaders to be successful,” said Ms. Heske.

Skills / Competencies →

• Deal flow, origination, lead generation.
• Capital raising and partnering with LPs.
• Investment track record: DPI/TVPI, number of deals, stage of investments.
• Governance/advisory work: Board member, board observer, impact with founders/CEOs to drive outcomes, perceived value add.

Culture Fit →

• Interpersonal impact internally.
• Thought leadership: internal and external.
• Domain expertise: Sector knowledge, ex-operating company knowledge.
• External network, syndicate relationships.
• Firm operations knowledge.
• Training, mentorship, advisory work internally and externally.

Part 4: Where Are These People — Hiring Externally

Once you assess your current bench and decide to look externally for great talent, SPMB suggests these five tips to hire right.

1. People move for title promotion: Hire less tenured talent and invest in training, mentorship, and behavior modeling for more junior employees.

2. Candidates want transparent paths to partnership and to GP/MP roles: Provide transparency around all internal promotion paths. Clearly define success metrics and hold people accountable to a shared internal culture and an outlined set of expectations.

3. Operators are the ‘Golden Ticket’: Hire former operators with domain expertise and train them to invest. These candidates typically fail or succeed quickly. They usually make great board members as they can often relate to founders and use pattern recognition to drive growth and avoid pitfalls.

4. Take inventory of your leadership team: Skills analysis, what will you need to backfill for first? Start there. Use assessment tools to identify and map skill gaps and prioritize in external hiring, beyond track record and domain knowledge.

5. Always. Be. Hiring. Consistently be in the market for great principals. Hire opportunistically. This is the tightest pool of great talent and the most in demand. Perception is that larger firms train large classes and don’t promote them all to partner. This is an opportunity for smaller firms to inherit disenchanted talent from bigger names, and for well-established funds that can show upward mobility to distinguish themselves.

From a recent SPMB internal study, the average venture capital investment team composition resembles:

• 29.2 percent = General partner.
• 28.3 percent = Partner.
• 16.5 percent = Principal.
• 26.0 percent = Other.

“The data illustrates that venture capital firms tend to be top-heavy,” said Ms. Heske. “Recruit at the principal levels and allow investors to grow into positions of leadership at the firm and on the investment committee.”

Related: 5 Common Mistakes in Succession Planning and How to Avoid Them

Contributed by Scott A. Scanlon, Editor-in-Chief and Dale M. Zupsansky, Executive Editor  – Hunt Scanlon Media