Although some dairy processors are operated by large cooperatives with succession plans, while other family-run businesses have a next generation waiting in the wings, a large swath of business owners are confronted with concerns about future leadership.

Some dairy processors will sell their operations to another business, but this is never guaranteed. Hence, it is important to develop a succession plan. According to Paylocity, “Succession planning is the process of identifying employees who can replace key roles and training them in advance, so they’re prepared. It’s a proactive way of making sure the organization is always equipped to meet its current and future needs.”

An effective succession plan helps you identify critical roles and create a pipeline of talent to fill them, the firm adds. “It’s a long-term process that focuses on developing employees’ skills so they can take over.”

Succession planning is important as it “prepares new leaders to take over when the time comes and supports a seamless transition,” Paylocity adds. “Ultimately, it’s about installing the right safeguards to ensure the long-term success of your organization.”

Succession planning is essential for identifying and developing future leaders at all levels of an organization, adds Robert Half, an international human resource firm based in Menlo Park, Calif.

“It helps ensure a business is prepared for leadership changes and for key roles — whether expected or not — and minimizes disruption,” Ash Athawale, senior vice president of executive search practice at Robert Half, tells Dairy Foods. “Rather than waiting for a leadership gap to emerge, businesses should be organizing and implementing succession plans on an ongoing basis.”

Ideally, businesses should start thinking about succession planning much earlier than they think they need to, even if a business appears to be running smoothly.

“It’s not just about being prepared for retirements or unforeseen events; it’s about developing people, creating opportunities for growth, and building confidence that the future is in good hands,” explains Heather Simcakoski, vice president of Customer and Employee Experience, Nelson-Jameson, Marshfield, Wis. “I’ve seen firsthand how much smoother transitions are when there’s a clear plan in place, not just for leadership roles but for critical positions throughout the organization.”

Fenton, Mo.-based ingredient supplier IFPC is a great example of a company that has implemented an excellent succession plan. “Succession planning is about protecting the legacy we’ve built over 50 years,” reveals Clayton Brown, CEO, IFPC. “I started thinking about it the moment I took over the business from my father, Fred Brown, Sr. The earlier you start, the more time you have to mentor and to ensure the next leader is ready to carry the torch.”

Conversely, according to the Academy to Innovate HR, not implementing a proper succession plan poses the following risks:

• Loss of essential talent and knowledge: Unexpected promotions, retirements, and departures of your best talent can lead to a talent gap and harm the organization’s competitiveness. That results in a loss of expertise and best practices that are fundamental to its day-to-day operations. 
• Increase in recruitment and training costs: When organizations don’t prepare for potential departures in key roles, they may spend more on recruitment and training to fill these positions.
• Uncertainty and confusion for employees: Without a clear succession plan detailing who is set to take over key leadership and management roles, confusion and fear can easily spread among employees. This can cause further conflict, miscommunication and power struggles. 
• The business can lose sight of its mission: It’s easy for an organization to start to lose sight of its mission and values, which can result in a loss of focus, effectiveness, and employee commitment. 
• It harms the company’s ability to adapt: A lack of a clear succession plan can lead to an organization relying on outdated processes and systems, which keeps it stuck in the past. Not only will it miss out on great opportunities, but it may also find it more challenging to anticipate threats and prepare for them.

How to start

According to Brown, “A great succession plan starts with honest conversations. It’s not just about naming a successor. It’s about building a team that can thrive without you.”

It is also critical to think of succession planning proactively, rather than reactively. “It starts with identifying which roles are critical and thinking about who on your team might be ready, or could be ready with some development,” Simcakoski says. “Having open conversations and offering growth opportunities helps build confidence and clarity for the future. It is not necessarily about having a perfect plan, but about being intentional and thoughtful in creating a path forward.”

So, what are some key steps to creating a forward-thinking succession plan? Athawale provides the following advice:

• Be proactive. Whether a departure is planned or sudden, having a succession plan in place ensures you’re ready to manage the transition smoothly and minimize disruption, which can adversely impact the business.
• Identify potential candidates. Keep an eye on high-potential employees who demonstrate key leadership qualities. Retention and leadership development often go hand in hand, and supporting employee growth can help build a strong internal talent pipeline.
• Invest in professional development. Provide employees, especially leadership candidates, with opportunities like mentorships, cross-team training, or stretch assignments to build the skills and institutional knowledge they’ll need.
• Offer a trial run of the plan. Have potential successors temporarily take on key responsibilities from their manager or team lead. This gives them real-world exposure and helps surface development needs before a transition becomes urgent.
• Align succession planning with hiring strategy. As you identify internal successors for key roles, also assess future talent gaps and feed those insights back into your recruiting efforts to ensure continuity and growth.

Job website Indeed offers the following as best practices when creating such plans:

• Start early. Succession planning should begin well before key positions become vacant. Aim to identify and develop talent early on so you can ensure a smooth transition when the time comes.
• Regularly review and update the plan. Succession planning is not a one-time event but an ongoing process. Regularly review and update your succession plan to reflect changes in business priorities and the market.
• Communicate transparently. Maintain transparent communication with employees about succession planning efforts. Foster a culture where individuals feel valued and informed about their potential for growth within the company.
• Measure succession planning effectiveness. Establish metrics to track the effectiveness of succession planning efforts. Use key indicators such as talent retention and promotion rates and use leadership readiness assessments to gauge the impact of your strategies.
• Prepare for contingencies. Anticipate potential obstacles in your succession plan. Develop contingency plans for unexpected events to promote business continuity and facilitate smooth leadership transitions.
• Celebrate successes. Celebrate successes achieved through succession planning efforts to amplify the positive message around your company.

Indeed also offers a free succession planning template, which can be downloaded at www.indeed.com/hire/c/info/succession-planning-template.

Is one succession plan enough?

Global financial website Investopedia notes that businesses may want to create more than one type of succession plan. “An emergency succession plan is put in place when a key leader needs to be replaced unexpectedly. A long-term succession plan helps the company with leadership changes.”

Whether a dairy processor should create multiple plans or not depends on the nature of the business, but having both a contingency plan and long-term succession plans is generally a smart approach, Robert Half’s Athawale suggests.

“Contingency succession planning focuses on risk mitigation and maintaining operational continuity, typically in the event of an unexpected departure. It usually involves identifying an interim leader who can step in with minimal disruption,” Athawale maintains.

“A long-term succession plan is a strategic investment in leadership development of high-potential employees. It often emphasizes structured growth and development through mentorship, training, and preparation over time,” the Robert Half executive continues. “The key difference in these plans would be the intended purpose of each. Contingency or emergency plans prioritize stability and immediate readiness, while long-term plans support sustained growth and future-proofing the organization.”

Nelson-Jameson’s Simcakoski also confirms that having both an emergency plan and a long-term succession plan can be valuable. “The emergency plan is more immediate. Who can step in right now if someone leaves unexpectedly? The long-term plan focuses on developing future leaders over time through professional development, mentorship, and competency,” she relays. “Both serve different purposes, but together they help a business stay prepared for any scenario should it arise.”

IFPC already has multiple succession plans in place. “We have a long-term plan for preparing the next generation involving growth and mentorship,” Brown says. “The emergency plan is about stability and continuity. Both are essential, because the business cannot afford to pause, even for a day.”

ESOP plans

Although perhaps not a solution for all processors, Employee Stock Ownership Programs (ESOPs) are something some can consider. Financial firm Wintrust states an ESOP is a unique and effective method for an ownership transition “while providing numerous benefits to the selling shareholder, the business, and its workforce.

“An ESOP is a qualified benefit plan that buys and holds stock in a sponsor company for the benefit of qualified employees. Utilizing an ESOP allows a business owner to sell all or a portion of his/her stock in a tax-advantaged way, while preserving his/her legacy,” Wintrust reports. “It allows selling shareholders to defer or even eliminate capital gains taxes from the sale, depending on the structure of the transaction. Additionally, the sponsor company can reduce or eliminate income taxes with ESOP ownership.”

ESOPs serve as a tool to attract and retain top talent, offering retirement planning and “fostering a sense of loyalty and commitment among employees,” the firm adds. “It also grants selling shareholders the opportunity to retain control over daily operations or maintain a board seat, if desired.”

“That’s the beauty of an ESOP, it checks a lot of boxes,” concludes Jim Swabowski, senior vice president of Wintrust ESOP Finance. “Navigating through that ownership transition, with all the different options available can be a daunting task. But every year that owners, particularly baby boomers, get older, they are doing their families a disservice by not putting a plan in place.”

Editor’s Note: This story is for informational purposes only. Dairy processors are encouraged to contact attorneys and/or financial professionals before enacting any plans mentioned in this article. DF