Succession Planning & Leadership Transition

Succession Planning & Leadership Transition Issues

One of the most difficult challenges for any business lies in the making of a good succession plan — where the next generation of management, or family, takes over the running of the business. 

The potentially explosive mix of commercial and personal issues generates more trouble inside more businesses than almost any other influencing factor and, as a consequence, the task is all too often put in the “too hard” basket – inevitably leaving a legacy of conflict and possible disaster for succeeding generations to grapple with.

It's no coincidence that banks regard having a Succession Plan, especially in a family business, as a key indicator of stability and professionalism.   Lack of a Succession Plan, especially in a business with a charismatic and controlling proprietor or managing director, is often reason enough for a bank to place a business “on watch” as it becomes increasingly nervous about its financial exposure to the "changing of the guard" in the business (and in the family).

Leadership Transition and Ownership Issues

Heads of family businesses often find it hard to transition themselves out of their leadership positions for a number of reasons, including:

• They are used to wielding, and being recognised for wielding, absolute power (of course, in a benevolent way!).  They see any diminution in their authority as a challenge to their personal status and worth and even as a challenge to their core reason for existing.
• They fear “what lies for them beyond” the business, because their lives have enjoyed such a strong, or even exclusive focus, on it.
• They can’t believe there could be anyone else in the family, or outside, who can know, love, suffer and achieve for the business as much as them.
• They want to protect the family from the perceived vicissitudes and liabilities of command and ownership.
• They want to enhance, or protect, their own financial security and retirement prospects.
• They simply can't imagine not "escaping" from home to come to the business 5, 6 or 7 days a week.  The prospect of regularly staying at home with their spouse or partner appalls or terrifies them!

Meanwhile, their sons and daughters, relatives and non-family managers working in the business wait in the wings to be called to centre stage, getting increasingly frustrated that the head of the business is the only one who thinks they’re still getting the curtain calls.

The Succession Planning Process

Succession Planning brings our commercial, financial, business advisory, mediation and facilitation capabilities together in an integrated service where we work closely with owners, business executives and family members (in family businesses) through the following steps:

• Identify all legitimate stakeholders and gather as much information as possible about their characters, interests and needs.
• Establish business and personal resources and exposures, including existing tax arrangements and potential implications of change.
• Identify and/or generate options and alternatives for leadership transition.  This process may be assisted by key management personnel in the business and by existing professional advisers re personal financial plans and tax arrangements.
• Assess options and alternatives against business and personal needs and interests.
• Identify and mediate between competing interests - turn them into agreements and mutual commitments between key parties.
• Facilitate consensus-based, go-forward plans.
• Facilitate the development of a written Succession Plan which is incorporated into the businesses’ Strategy Plans and Business Plans. In a family business this may also be enshrined in a broader Family Agreement (Family Constitution).
• Assist the implementation of the plan.
• Accept nomination as the independent "head kicker" with contractual authority to enforce the terms of the agreement.

Succession Planning for Leadership Transition – 4 Stage Process

Ten Essential Wisdoms for Successful Succession

1. Do make succession a controlled process, rather than an event.
2. Do be professional, not protectionist.   Provide objectivity, independence and impartiality for the sake of your business and for those whose lives and lifestyles depend on it.
3. Do recognise that there are always other options.   Search for them and think inside and outside the square.
4. Do appoint a long term steward for the business, its people and its values.  Their motives for seeking the role should place business continuity far above personal gain.
5. Do respond to the leader’s fear of the abyss.  When the business has been his or her life, moving out of it is like stepping into the void.  Help to ease their move.
6. Do work out how much is enough?   How much money does the leader need to be comfortable and financially secure for the rest of his or her days?  Let the balance go if it will help the succession plan and create sustainable harmony in the business and in the family.
7. Don’t just search for, or try to create, a clone of the current leader – the successor should stand on the leader’s shoulders, not just fill their shoes.
8. Don’t demand 60 year old behaviours and values from 30 or 40 year old leadership candidates.  Exchange safe horizons for credible, 20+ year visions for growth and prosperity.
9. Don’t “hand over the reins without getting off the horse”.  Don’t demand responsibility without giving ownership, even if ownership has to be a staged process.
10. Don’t surrender your business and family timing objectives purely for tax/wealth benefits.  Weigh personal gains against financial pains.

Benefits of Succession Planning

As professional mediators, business advisers AND family business specialists we bring a different set of competencies into the Succession Planning process - we deal with both the people and the technical issues - observing both appropriate sequence and balance.

We believe that the inherent tension between these issues is usually not addressed adequately, or at all, through conventional advisory processes.

The result is enormous angst in the key players (ie: proprietors, senior executives and family members in family businesses) at the very time when they most need clear heads to make major decisions about the significant changes they need to commit to.

The result is a far more constructive and harmonious process that helps to keep the business, the individuals and the families behind them closer together, while also creating an environment where it is possible to celebrate the successes of the past that make the planned transition both possible and worthwhile.