The Ten Commandments of Succession Planning - Part II
In this second article in this series, we'll explore the last five steps in "The Ten Commandments of Succession Planning."
For the first five steps, click here
to see the first article in this series.
#6 Sell or Transfer
There are difficult decisions to be made as to what to do with a business:
The primary cause for failure in a transfer of a family business is the failure to plan adequately.
- Close the doors
- Sell to an outsider
- Sell to an employee
- Pass it down to family
Some founders scrutinize the next generation so carefully, as any failure they can find can be used as a reason not to transfer control, yet.
Another common problem is with senior managers who have had a deep personal relationship with the founder and must now transition to a business relationship with the successor. That is why it is critical for the founder to include the successor-to-be in important meetings and to delegate important, meaningful functions so that the team can start to build a bond with the successor and he can start to develop trust and respect.
#7 Choosing a Successor
What long-term responsibility is greater for the head of the company than identifying a successor? Not too many.
Very often this person is a child, but it might not be.
Often the founder focuses on fairness if there are several children but a more important criterion is, Who is the best fit? If joint successors are appointed, they should have factors in common such as equal commitment, motivation and ability.
As with so many of these steps, planning early is vital. Some specific pointers may be:
- Plan early - even if retirement is still in the distance
- Talk to the heirs to make sure that everyone is on the same page
- Be realistic - if someone doesn't have the desire or ability to run the business, it is unlikely that will change overnight if they are tasked with that function.
- Get outside advice - this may be the one time when getting an unbiased, outside viewpoint in invaluable.
- Train your successor(s) - this may take several years but making sure that they achieve objectively set standards of skill and experience is something that the founder cannot abrogate.
#8 Sharks in a Tank
If owners have been allowing multiple children into the business without preset conditions, the question of "How do we choose from so many successors?" becomes very difficult. It's a reason that owners sometimes avoid the subject of choosing a successor.
Here are some suggestions that might help that process:
- Create a Family Business Council as discussed in Part I of this article.
- Never create open competition between siblings as the leadership position needs to be earned and you don't want to be responsible for sowing conflict.
- Reward collaboration. Those who show early on that they can collaborate can be rewarded in ways appropriate to each of them.
- Send the potential successors to seminars and training workshops.
- Hire an executive coach or mentor.
#9 Does Fairness = Equal?
The correct and fair way to divide an estate is a sensitive and often divisive issue. Some typically complicated questions are:
- Must a family business be divided equally between family members?
- Can it be divided unequally but still fairly?
- What happens to family members who are not in the business?
- Must they receive a portion of the business or should they receive other assets?
- What happens to someone who was in the business and has since left?
Very often, if an owner is able to, he leaves the business to those involved and some other assets to those who are not involved in the business.
Often fair is not equal, although fairness is often complicated. This is a classic example of where a trusted outside advisor can be of enormous benefit and value.
#10 Retire - to Projects, Not to Leisure
Many of the previous points directed the owner towards stepping back and letting others run the family business. The key difference in a successful retirement is stepping back from running the business and stepping forward into something else. That could be to a hobby or to some other project or passion.
Whichever it is, it should be the culmination of proactively planning when you are going to retire and what you are going to retire to.
Some helpful tips to retirement may be:
- Put a retirement date on the calendar, and stick to it.
- Tell everyone about it so that you can't back out.
- Start spending less time at the office.
- Make a list of the things that you are going to start doing and start taking a day off a week to start doing them. Then increase it to two days and three.
- If you are having a tough time sticking to your goal, use a retirement coach - it may even be the same person that one of your successors is using as an executive coach or a mentor.
You don't want to be the example of going from denial to dementia - first being in a state of denial that you need to retire and then not being able to enjoy retirement.
It's a process and a very worthwhile one.
When you're ready to be there - happy retirement!