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Defy the Odds of Family Business Succession

May 16, 2018

Posted in: WATSON Views

24/7 connectivity makes it almost impossible to leave work at the office. Now imagine the challenge of trying to distance work from family when the CEO and the senior executive team gather around your table for Sunday dinner. Such is the reality for many a family business. Work-life balance takes on a whole new meaning. Next, layer on the ever-sensitive discussion of succession planning, and you can guarantee emotions will run high. Survival rates from generation to generation paint a bleak picture. But there are family businesses who defy the odds. And although it may look easy from the outside to be the children of the president, well-orchestrated succession in a family business is a direct result of intentional governance.

Founders and their families excel at working IN the business, bringing a passion for the operations seldom-rivaled in non-family businesses. But working ON the business is often a hard fought battle. However, successful family businesses with an eye on the future aim to strike a balance between working IN and ON the business, the growth model made popular in Michael Gerber’s The E-Myth. Taking a page from publicly traded organizations large and small, family businesses invest in regular forward-focused planning, including the often overlooked and undervalued process of working on the business of transition. When the time comes to hand over the reins to the next generation, both the business and family are ready. This readiness extends beyond the current CEO and incoming heir, to the broader family including those actively involved in the business and those who are not part of the day-to-day operations. In family businesses that have successfully navigated the business of transitioning leadership from one generation to the next, two themes rise to the surface: continuity and communication.

Continuity

Rife with emotions and speculation, poorly executed succession planning can stall an organization’s performance for months or even years. To overcome this potential derailing, family businesses are shifting their focus from succession to continuity. They look beyond the pure act of transition from the current CEO to the next-in-line leader to establishing business practices that contribute to the company’s long-term success.

Build an External Advisory Board – It can be lonely at the top and many founders or CEOs are hesitant to share challenges or problems with their family members to spare them the worry or to avoid the perspective of ‘not having all the answers’. Advisory boards are an excellent way for family businesses to seek guidance, particularly in times of unexplored business opportunities such as mergers, acquisitions or expansion. Advisory boards tend to be smaller than governing boards and play a different role by making non-binding recommendations. When populating an advisory board, consider: experience relevant to the company’s industry and line of business, passion, fit, customer or supplier insight, advisory experience, availability and credentials.

Revisit Succession Readiness Annually – Traditionally, the transition from single founder to heir may have been relatively straight-forward, depending on the number of children and how each child had been groomed for succession. However, subsequent generational transition can be muddy, with each generation vying for their children to be part of the business. First born is no longer guaranteed the corner office. Nor can a family business ignore the fact that the deemed successor is rarely ready to capitalize on unforeseen business opportunities. Annually, the senior leadership team should revisit the 3-5 year growth strategy and assess the potential heir’s readiness to lead the company in the desired direction. Some questions to consider:

  • Does transition make sense now, given the potential business opportunities?
  • What skills and experience will the business need in the next 3 to 5 years?
  • Is there a family member with these skills and will they be ready to take over in the succession timeframe?
  • Do we need to bring in someone externally to lead the company until Junior is ready?
  • How can we help Junior successfully execute in unchartered territory?
  • What development or support should we provide Junior to lead the company through the next phase?
  • When will transition happen?
  • What’s the strategy for introducing Junior to key customers and external advisors?
  • What involvement should the outgoing CEO have in the company?
  • How will the transition be communicated internally and externally?

Ready the Next Generations – Under the umbrella of continuity, family businesses should look to create ways for the next generation to learn the business and business in general. Many children in family businesses have been working odd jobs in the company since they were old enough to collect a pay cheque and assume that they will always work there. But time-in doesn’t necessarily equal the requisite skills and experience. To ensure the next generation is ready to take on a leadership role, family businesses should build a thoughtful and comprehensive development plan. Consider the following tips:

  1. Bring in a senior executive to coach and mentor successors. This is particularly effective when the company is facing a potential business opportunity that it has never before encountered, such as an acquisition or expansion. In addition, coaching coming from an outsider is often received more positively than from mom or dad.
  2. Encourage children to work outside of the company first. This provides the successors with opportunities to learn and excel in an environment where your last name doesn’t matter. It also has the added benefit that when the child returns to the company, they bring back valuable skills, approaches and perspectives they would not have been able to learn inside the family business. A note of caution – some family businesses set a specific time requirement for children to work outside the company; in some cases this can backfire, as the heir finds themselves happy and successful in another organization and may not wish to return to the family business.
  3. Develop intrapreneurship opportunities whereby the next generation can build and grow a project within the company. Back the initiative, establish guidelines (including budgets, resources and performance expectations) and then stand back. This provides the successors with an opportunity to develop leadership skills and work independently, while providing the senior leadership with visibility into strengths and areas for growth.
  4. Build comprehensive orientation through a rotational work program. Although some children may have worked in multiple divisions as teenagers, a rotational work program requires a 6-12 month internship in each key division, such as manufacturing, marketing, finance, and HR. Prior to each internship establish goals and conduct a fulsome debrief upon completion, to gauge interest, aptitude and passions.

Transition Decision Making – Many families create clear succession plans outlining who moves into what role and when, but neglect to detail the transition in decision making. It makes it difficult for the new CEO to lead when the exiting patriarch and matriarch weigh in, or worse, second-guess, their children’s vision and execution. This interference trickles down very quickly in both the business and the family. Establish guiding principles on how decisions will be made and who will be involved based on the nature or scope of the decision.

Communication

In any organization, when it comes to transition and change, communication is key. It can be the difference between retention and turnover, acceptance and resistance, and ultimately, success and failure. Throw in family dynamics and the need for clear, timely and broad communication amplifies.

Continue to Check-in – Being born into a family business may not be the golden ticket to a happy career. Some children grow up watching their parents work long hours in the company and consciously choose not to follow in their footsteps, but this may not match expectations from mom and dad who assume the kids will take over. Or, in some cases, dad knows that Junior just doesn’t have what it takes to run the company. Often, these unspoken differences in opinion fester until families fall apart and companies flounder. In any business, communication between CEO and management is critical; in a family business it is the difference between peace and chaos at both the board and the dining table.

Bring in a Facilitator – Regardless of how healthy the family dynamics are, it may be worth engaging a professional facilitator trained as a Family Enterprise Advisor to help open the channels of communication. This generally starts with meeting individually with each family member to get a sense of the family dynamics, values, challenges, how conflict is dealt with, etc. This information forms the basis for a family meeting to discuss trends and to start a conversation about a Family Charter and Code of Conduct to provide guidance on how future conflict will be addressed.

Create Communication Rhythms – Communicate early, often and broadly. Within the business, establish weekly, monthly, quarterly and annual communication forums with key family and executives in the management team to review results, assess initiatives, and as necessary, adjust plans. Succession planning should be an annual conversation about the evolution of the business, and the future skills required, to ensure these are being developed in potential future leaders. Within the broader family, set up events to bring together everyone above a set age (e.g., 16) to talk about the business in more general terms. These family events create a window into the business for younger family members to see what the company is all about and generate interest in taking a more active role in the future.

Working on the business will never equal working in the business in terms of time and energy. Yet, when measured in importance to the long-term success of the business, few things are more important than working on the business of transition.