July 2, 2013
CSD: Is Your Family Fit to Run the Family Business?
Through a special arrangement, presented here for discussion is a summary of an article from Convenience Store Decisions magazine.
When it comes to family business succession planning, most don’t plan for it, don’t do it well, or wait until it’s too late.
While the CEO longevity in non-family businesses averages six years, family-owned businesses’ CEOs tend to stay for 20-25 years. That long tenure contributes to stability and consistency, but can also fuel flat growth, narrow business focus, and decreased leadership drive. It also creates a high level of frustration in the next generation that is ready to charge forward.
We commonly think about the top five to eight key positions for a written, structured succession plan. Here area few succession tips to keep in mind:
Think beyond seniority. Many family business executives choose their future leaders based on seniority. This "easy" choice can backfire if the adult child or the one with the most seniority has not gained respect from other family members and employees.
Embrace a more professional vetting process (skill evaluations, performance assessments, and career review). Succession readiness calls for a written transition plan and an individual development plan for the future CEO within three years of the planned succession date. It may involve identifying other executive team members with succession needs, building a coaching plan, and providing stretch assignments in different functional areas of the company.
Rank possible successors. Consider creating a list of all the possible successors and rank them, from 1-10 (with 10 being high), in each of the following areas:
- Past work experience and advancement history
- Education
- Geographic mobility, if appropriate
- Learning agility
- Prior leadership positions
- Advancement potential
- Advancement desire
- Interpersonal skills
- Alignment withcompany values
- Past performance ratings
- Ability to take risks
- Decision-making ability
- Problem-solving ability
Groom the next generation. Once you have a successor in mind, offer him/her additional development through such things as job rotations, stretch assignments, additional profit and loss responsibility, and additional exposure to board members and customers. The more prepping, the smoother the transition.
Consider a non-family leader. A non-family CEO frequently brings diverse, in-depth experience to drive business growth, bringing professional alliances, partnerships, and strategy opportunities.
Keep emotions under control. Sibling rivalries often ensue. When you add to the equation parents (and even living grandparents) still owning and operating the family business, the stakes become alarmingly high.
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Recent Discussions
Discussion Questions
What do you see as the particular challenges inherent in succession planning for a family-run business? Do you agree with the recommendations given in the article?
Poll
All excellent suggestions based on the assumption that the current CEO understands the need to undertake the steps necessary to make a smooth transition to the next generation on a timetable that makes sense for both and is willing to do so. We are all aware of situations where the incumbent wants to stay in their role while those waiting in the wings are anxious to get started.
One issue I didn’t see addressed is when the successor is in place is the predecessor willing to step back and let them truly run the company. You need to have a transition plan for the ownership of the company that parallels the transition of the management to address that issue.
A compelling topic to roll up our sleeves and discuss. The issue is often one of the founder and off-spring having trouble separating work from family gathering around the table to celebrate a birthday/holiday/celebration. Additionally, the founder often believes that: s/he built the business; no one else can do it as well; any “new ideas” that are not endorsed by the founder just reinforce how no one else is ready to do it/as good at it/capable of doing it; etc.
Being objective in assessing talent works for “strangers.” For family, it introduces a host of issues that are not easily processed. Is it possible? Surely, it is. However, it is not accomplished without tremendous forethought, constant interventions throughout the careers of the offspring, and working with the other employees to prevent issues from cropping up that make the path even harder for the offspring.
While there are multi-generational successes we can all list, the failures are easy to think of as well. Are you “boss” or “parent?” What makes sense for a boss to say may contradict what a parent would be inclined to share.
If only it would work so easily! Unfortunately, family succession planning isn’t like following a movie script. I have a psycho-therapist friend whose entire practice is made up of those in a family business. And I remember consulting to a well known patriarch-run business where the founder, even at 87, “commanded” his 50-something CEO son around like he was 12. It was sad to watch and, needless to say (as the guy brought in by the son), I didn’t get very far either.
At the core of this very real struggle is the brutal reality that sharing DNA is not a qualifier for any position never mind that of CEO.
I have worked with many family businesses, and also have helped plan these types if transitions. My belief is that successors should meet qualifications with a blind eye toward family relationships. Whether the business is a single store or a multi-billion-dollar enterprise, making the assumption that the next generation will simply step into the leadership role is naive.
A very interesting and somewhat timely subject for me. I have a family run business. Thinking of succession has been a subject on my mind, but not in place or signed off on paper. It will be my wife and I having to be replaced at a time hopefully not too far in the future. Yes, we have things remaining to be accomplished before that can happen. Our sons are both in different fields. One is not interested in joining us, the other is. But that does not mean the one not interested should not have a voting voice in the business.
I have too many questions unanswered that need resolution. Once I have that I can proceed with establishing the plan. Fortunately, our business does not need brick & mortar so neither of our sons would have to move to make the process work.
My own personal experience regarding succession planning — and it comes from the perspective of an employee at such ‚ is don’t, as in, don’t plan on the heirs having any active involvement whatsoever. For every success story, I think there are several disasters and many more mediocrities. Ralph’s assessment of “naive” seems generous. If you want the business to stay in the family, fine; put control in some non-voting trust until the descendants have developed the maturity and wisdom to safely exercise control…say age eighty-five.
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All excellent suggestions based on the assumption that the current CEO understands the need to undertake the steps necessary to make a smooth transition to the next generation on a timetable that makes sense for both and is willing to do so. We are all aware of situations where the incumbent wants to stay in their role while those waiting in the wings are anxious to get started.
One issue I didn’t see addressed is when the successor is in place is the predecessor willing to step back and let them truly run the company. You need to have a transition plan for the ownership of the company that parallels the transition of the management to address that issue.
A compelling topic to roll up our sleeves and discuss. The issue is often one of the founder and off-spring having trouble separating work from family gathering around the table to celebrate a birthday/holiday/celebration. Additionally, the founder often believes that: s/he built the business; no one else can do it as well; any “new ideas” that are not endorsed by the founder just reinforce how no one else is ready to do it/as good at it/capable of doing it; etc.
Being objective in assessing talent works for “strangers.” For family, it introduces a host of issues that are not easily processed. Is it possible? Surely, it is. However, it is not accomplished without tremendous forethought, constant interventions throughout the careers of the offspring, and working with the other employees to prevent issues from cropping up that make the path even harder for the offspring.
While there are multi-generational successes we can all list, the failures are easy to think of as well. Are you “boss” or “parent?” What makes sense for a boss to say may contradict what a parent would be inclined to share.
If only it would work so easily! Unfortunately, family succession planning isn’t like following a movie script. I have a psycho-therapist friend whose entire practice is made up of those in a family business. And I remember consulting to a well known patriarch-run business where the founder, even at 87, “commanded” his 50-something CEO son around like he was 12. It was sad to watch and, needless to say (as the guy brought in by the son), I didn’t get very far either.
At the core of this very real struggle is the brutal reality that sharing DNA is not a qualifier for any position never mind that of CEO.
I have worked with many family businesses, and also have helped plan these types if transitions. My belief is that successors should meet qualifications with a blind eye toward family relationships. Whether the business is a single store or a multi-billion-dollar enterprise, making the assumption that the next generation will simply step into the leadership role is naive.
A very interesting and somewhat timely subject for me. I have a family run business. Thinking of succession has been a subject on my mind, but not in place or signed off on paper. It will be my wife and I having to be replaced at a time hopefully not too far in the future. Yes, we have things remaining to be accomplished before that can happen. Our sons are both in different fields. One is not interested in joining us, the other is. But that does not mean the one not interested should not have a voting voice in the business.
I have too many questions unanswered that need resolution. Once I have that I can proceed with establishing the plan. Fortunately, our business does not need brick & mortar so neither of our sons would have to move to make the process work.
My own personal experience regarding succession planning — and it comes from the perspective of an employee at such ‚ is don’t, as in, don’t plan on the heirs having any active involvement whatsoever. For every success story, I think there are several disasters and many more mediocrities. Ralph’s assessment of “naive” seems generous. If you want the business to stay in the family, fine; put control in some non-voting trust until the descendants have developed the maturity and wisdom to safely exercise control…say age eighty-five.