Prepare the Next Generation
Originally published: 08.01.14 by Lisë Stewart
8 key steps to an effective succession process
David, a dapper looking 60-something company founder asked if I’d spend some time talking to him about the future of his business. David has two sons and two daughters, all of who are working in the company. He married late in life and his children are still fairly young, ranging from 18 to 30.
His children have all different personalities and skills and he’s not sure which, if any of them, should run his company some day.
Jenny is the oldest. She ikes working in the company, but is quiet and shy and would hate to manage people or make some of the tough decisions. Jerry is a hard worker, but he’s aggressive and tough, and really hasn’t earned the respect of his co-workers, which David fears could drive some of their key people away.
He’s also not sure what his youngest, Sid and Kari, will be like as they mature. He simply doesn’t know what to do.
Developing and/or identifying the appropriate successors in a family-owned business can be both challenging and exciting — and, in some cases, a source of conflict and frustration. Many parents are understandably fearful of creating a rift by choosing one child over another, or admitting none of their children are right for the job.
To avoid the negative aspects that can lead to confusion and disharmony, effective succession planning should consider a number of key components, such as planning for the future of the business, planning for the retirement of the owners and planning to train and mentor the next generation of leaders.
The first step in developing an effective succession plan is the development of a short and simple vision for the future. This should include a discussion on the long-term potential of the company, identification of the business goals and, in parallel, development of the desired roles and financial goals of the retiring generation.
This process should begin about 10 to 15 years prior to the desired succession date. This way, the family can develop financial and estate plans to support their needs and help realize their dreams. In addition, they can build a business capable of succeeding after they’ve moved on.
A well-managed succession is a nonevent — so well planned and implemented it’s not a diversion from normal operations. It’s an evolutionary process that occurs over time and is designed to enable the business to meet its strategic potential.
Some families will carefully groom an existing family member for this role and others will choose to hire senior expertise from outside of the company — it all depends on the needs of the business and the skills available within.
Once the basic strategic plan (the vision and goals) is complete, a small business can use this as the foundation for one of the most important discussions that will ever take place in a family-owned or closely held business: deciding what key skills and attributes are needed in the future leaders for the company is to meet its strategic goals.
Consider the following steps as you design your own plan:
- Discuss the importance of ensuring the leader, or leaders, in the company possess the necessary skills for success, rather than simply passing the reins to family members. The earlier you have this conversation with your children, the easier it will be discuss a variety of options for future leadership.
- Focus on the skills needed in the future, which are not necessarily the skills required today. Dad may have been a whiz at making widgets, but that might not be necessary in the future. Perhaps the new leader should have sales experience or outstanding people skills.
- Determine whether or not family members or employees possess the appropriate skills and/or can acquire them. Focus on skills, not family membership, age or status.
- Consider providing the potential successor with experience outside the family business to hone their skills, learn new management techniques and build their network of mentors and advisors.
- Create a personal development plan with input from the potential successor to ensure the on-going attention to skill development and continuous improvement. Identify potential mentors or coaches who can add value to the process.
- Consider forming a Board of Directors and/or Advisory Board to provide a broader management perspective.
- Develop an agreed policy for reviewing the performance and compensation of the successor well before it becomes an issue. Remember, it’s best to deal with emotional issues before emotion becomes the issue.
- Develop a document that clearly describes the changing roles and responsibilities of the current leader and the evolving roles and responsibilities of the successor.
While the next generation of leaders need to possess many of the key attributes that made the company successful in the first place — passion, commitment, curiosity and a willingness to learn on the job — they’ll also need to recreate entrepreneurial wonder while inspiring others to build a successful business.
Succession simply can’t be left entirely to family members, but instead must focus on finding and grooming the right person based on skills rather than bloodline.
Lisë Stewart is founder and director of Galliard Group, a training and consulting firm specializing in family-owned and closely held businesses. She is a nationally recognized author and speaker who draws on more than 25 years of experience to share practical advice for ensuring sustainability of family businesses. You can reach Lisë at firstname.lastname@example.org.