Transitioning leadership within the family business environment is one of the most common causes of conflict within family businesses. Far too often, choosing the heir apparent can tear a family and business apart. These questions may direct your thinking early in the process to ensure success from both a business and family perspective. David Harland – Family Business Advisor
One of the most challenging aspects of strategic family business planning is choosing the right successor. There are several innate problems to this part of the process: Some families have too many potential successors, and others, too few. Many family leaders find it difficult to separate the needs of the business from the needs of their children and family. The problem grows exponentially more challenging when there are business partners involved. The goal of this column is to help answer the question: How can family business leaders choose the right successor?
Of the entire succession process, nominating the next leader may be the most fraught, particularly if you must choose among a number of children or family members, which is why many leaders leave it too late. Selecting a successor may be viewed as favouring one child over another and can create friction. In an effort to avoid the emotional upheaval, some leaders avoid the issue and adopt an attitude of “let them figure it out after I’m gone.” Unfortunately, this option virtually guarantees a legal fracas and a failed transition. We also don’t recommend pitting possible successors against each other in a competition or using gender or birth order as selection criteria. Doing so creates rivalries and resentments and the business may not end up with the best candidate for the job.
Based on a growing body of research, we recommend that business leaders look at selection models developed for corporate executive succession, which are designed to separate business management from ownership and create a strategy for future success. In this model, business management develop specific company objectives and a job description detailing the skills, experience, education, and even personality attributes required for future executives.
Here are some questions that can help guide the process:
- Do we have a clear strategic plan for the business that outlines succession and future goals for the business?
- Is there a documented statement of our expectations and core values that has been communicated to employees and family members?
- Are there clear and objective benchmarks with which to evaluate successor readiness?
- Do we have a neutral space in which to hold family discussions and do we have an objective third party that can help us navigate difficult topics?
- Do we have employment policies that hold family members accountable and outline expectations for every level in the firm?
- How are family members and employees currently assessed in their jobs? Do we have policies in place to help them grow and address deficiencies?
When you have a candidate in mind, it’s also critical to gauge his or her inclination to take over the business. Several studies have shown that a successor’s willingness to participate in and carry on the family business is key to a smooth transition between generations. If you find yourself in the situation of having multiple possible successors, take a moment to consider your good fortune, and start thinking about what other important roles the next generation could take on. Reserving leadership roles for family members can go a long way to diffusing rivalries and can help provide the next CEO with an able, motivated leadership team.
If you were to boil down the whole issue of succession into a single commandment, it would be this: Communicate early, often, and clearly about your plans for the business. The single greatest reason for succession failure is that the current leadership left the transition process too late or didn’t plan for succession at all.
Ultimately, your succession plan will depend on you, your family, and the type of business you are in, and it’s wise to get started as soon as possible.
Would you like more information on Succession Planning? Contact FINH on 07 3229 7333