By Richard M. Segal
July 29, 2010
The best way to approach the design of a succession plan is to collect all the stakeholders and their advisors in one room and put all the cards on the table. Play the transaction open handed and attempt to meet everyone’s dreams, goals and aspirations. Before you call me crazy, let me tell you I have seen this process many times and it usually does produce a good result. Nothing is perfect and neither is a succession process. But with reasonable people and some compromise and collaboration, a good result will be born.
It is important that everyone be in the same room for the discussions. This avoids the “he said, she said’s” and allows all the parties to hear the issues, negotiations, and resolutions first hand. It allows all parties to understand the nature of physics in these things – for every action there is an equal counter action. And the golden rule – them that has the gold makes the rules. Nonetheless, transparency is a key to success.
The problem is that the advisors normally want to address the transfer of assets and the financial security of the senior generation. The next generation is eager to finally gain control of the company and believe it is theirs to catapult to the next level. The frequently missing link is the management transition.
I have been involved in scores of succession plans. Even when everyone has the best of intentions, seldom does a new organizational chart with job descriptions get thrown into the mix. The euphoria of the transfer has everyone believing that everything is going to be all right. It isn’t that simple!
While Junior might be quite capable and good at his job, he has seldom taken on the real responsibilities of the chairman of the board, CEO, COO and president. His departing parent may have been semi-retired for years, but still made most of the major decisions, owned many of the contacts and had more experience in that pinky finger than Junior has amassed in his 20-plus years of service. Sure there may be a good strong supporting cast, execs and middle managers who have been with the company for years, but don’t expect them to transfer their loyalty, or even to necessarily stick around.
I am reminded of one situation where the CFO was Dad’s first major outside hire, been with the company for 30-plus years and was godfather to Junior, but he decided it was time to retire with his good friend rather than work for his godson. Then he actually went to work elsewhere.
So often Junior thinks that Mom and Dad are semi-retired and aren’t really part of the daily operation so that their function is easily replaceable – almost nonexistent. If there is no foreshadowing of the changes, just wait until Junior meets with the banker for the first time without the Guarantor of the loans and see how that goes. “Where’s your Dad,” is a bitter pill to swallow.
Far too often – in fact, most often – no thought is given to the changes in management and strategy that need to occur during the succession process. Just because we share genes doesn’t mean we are good at the same things, or that we are ready to take over. It makes far more sense to review your organization, collect the skill sets and job functions that will be retiring and find a means of replacing them – that is assuming they are still needed. This could include anything from new hires, education/training, or outsourcing. The key is to be prepared once the key is turned over to do business at least as well.
One of the key decisions is who will take charge of “new” company. Sometimes the answer is obvious – at least to some – other times there might be either multiple candidates, or no viable candidates. There has been some very creative succession plans designed to accommodate all of the above. However, no plan can address a problem that has not yet been recognized. Certainly, how the ship will be captained in the future needs to be one of the earliest decisions in the managerial succession process.
I would warn strongly against any kind of an anointment by the retiring generation. Selecting future leaders by the outgoing team is sure way to create a war at some point. Even if the choice is obvious, there needs to be some process where the future leadership buys into their new captain.
Things change with succession and there should be a review of strategy to see if it fits the new model. Most likely it will need to be tweaked somehow. This is a great time to do some strategic planning. It doesn’t have to be difficult and cumbersome. The thinking is the important thing whether it comes from a structured process or bullet points on a cocktail napkin. Getting in the mode of thinking through changes is the main point.
Too often family firms do the math and get the assets transferred, but lose in long run due to missing the management transition. Things can look euphoric out of the gate, but a few years down the track you may want the old team back if you haven’t done the planning right.
Richard Segal is the chair of the Family Business Council, a membership organization of family owned businesses. He can be reached at rmsegal@segalconsulting.biz or visit www.segalconsulting.biz