Succession: The Tie That Binds

By RenA(C)e Montoya Lado of Family Owned Business Resources Effective succession planning is the tie that binds the family business for multi-generational success. Succession is concerned with passing control of the family business from one leader to another (for example, a founding parent to a child in the business). This issue presents itself most urgently when a founder/leader begins to consider exiting the business, whether for retirement or for health or other reasons. The decision must be made at this juncture to sell or close the business or continue it as a multigenerational family enterprise. A business that is committed to continuing after the exit of a founder/leader will inevitably need to adopt a succession plan. In fact, succession planning is a key metric of long term stability for the multi-generational enterprise. And family enterprises are in great need of stabilizing metrics, as we can see when we look closely at the family business sector. We know that more than 80 percent of current family business owners believe the same family or families will control their business in five years, but succession statistics undermine this belief. According to many studies, only about 30 percent of family owned businesses survive into the second generation, 12 percent are still viable into the third generation, and only about 3 percent of all family businesses operate into the fourth generation or beyond. There is a disconnect between the optimistic belief of todayaEUR(TM)s family business owners and the reality of the massive failure of family companies to survive through the generations. Research indicates that failures can be traced to one factor: an unfortunate lack of effective family business succession planning. In a recent survey by The Boston Consulting Group, family business leaders ranked succession as the second most important subject on the their minds, topped only by the closely related issue of achieving alignment among family members on critical topics. Research shows that more than 40 percent of family businesses have not adequately prepared for succession during the past decade. When we take a closer look at the history of succession, we learn that succession has, for centuries, been determined by innate characteristics such as heredity, gender, and birth order, and sometimes marriage. We see this in the rites of succession from tribal clans to kingdoms - even as recently as in some of our most influential industrial dynasties. Some leaders identified their successors by seemingly subjective criteria or with declarations akin to aEURoebecause I say soaEUR?. These candidates were then anointed and groomed for roles of increasing responsibility within the organization, ultimately culminating in the handing down of the top job. While this has been the de facto approach for centuries, it has not always been the most successful. Why? Perhaps it is because it is missing critical information about the position itself and how the individuals who fill the position actually execute their jobs. While it is the enterprise founder/leaderaEUR(TM)s prerogative to choose who succeeds him/her and when, we assert that executing succession as a business process can be a critical discriminator for the transition of every business. LetaEUR(TM)s face it, the navigation and execution of any business is based upon careful gathering of information and intentional execution of work against an explicit and measurable set of criteria. Since succession is arguably one of the most important processes in a business, shouldnaEUR(TM)t this process be executed with the same meticulous effort? And shouldnaEUR(TM)t the selection of a succession candidate be made with the very best information possible? Remember also, that often in family enterprises, a parent who is also the founder/leader may need aEUR~rationalaEUR(TM) assistance when selecting one of his or her adult children as a succession candidate. So letaEUR(TM)s break down the succession process into its most basic steps. These donaEUR(TM)t need to be elaborate and time consuming, but it is quite helpful to be thoughtful and to use existing assessment tools that make sense to you in order to properly measure competencies and attributes. Assessment tools come in all shapes and sizes and can measure just about anything under the sun. Finding and utilizing the right assessment tool will ensure that you are selecting the aEUR~best fit candidateaEUR(TM) that will likely be successful. (Stay tuned: our next article in this series will delve deeper into this aspect of succession planning.) Develop a Founder Profile This step is about clearly identifying the requirements and competencies of the position at this point in time and with eyes open to what will likely be required in the future. Every leader comes to a position with strengths and challenges. Over the years his or her strengths are honed and the challenges become less obvious. Founders of businesses are often in place for three to five decades aEUR" their positions growing up around them like more children. It is critically important to understand all of what the founder/leader brings to the position. It helps greatly if you utilize a personality and skills inventory to help delineate and clarify his/her strengths and challenges. Also consider what particular market and economic challenges the founder/leader has lived through and had to combat. Have eyes wide open about whether these same challenges will be present in the future or whether or not new and different challenges will likely be present and therefore likely to require a different set of skills and attributes. For example, consider a man who has been the sitting CEO for 43 years of his familyaEUR(TM)s filter manufacturing company. He built the first plant in the 1970aEUR(TM)s. His commitment and tenacity has helped create a powerful brand in his market sector. While his business is profitable and he has taken care of his family over his life time, his market share is shrinking and his operational costs are stressed. Many of his skills and attributes will be clear requirements for his successor, but there will also be requirements for his successor in the areas of technology and smart manufacturing as well as market pressures having to do with an off shore competitive landscape that surely will also be waters to navigate. Documenting the Founder Profile to include ALL of these requirements is critical.

Meet The Experts

  • VIEW RATINGS FOR INSURERS
    Enter name of Insurance Company and press GO button.