Business Succession:
Are you getting ready to pass the baton?
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Many of us dream of passing on our business to our children, even trusted colleagues or others that we meet along our business journey. Dreaming of it is one thing, but the reality of a smooth business succession hits when we try to make this a reality.
Board Associates have helped a number of clients to navigate this important transition.
Common questions, issues & challenges:
Running a family business has its own unique advantages and challenges. They are often more resilient, more strategic and more stable, but sometimes, they can also be volatile and in some cases, even damaging to the family. That’s why managing the transition to the next generation has to be supported and managed carefully to give it the best chance possible.
So where do you start
Get the foundations in place
Research shows that when things go wrong, it’s often because of conflict over the vision for the business, roles of the family members or their compensation. Well run family firms address this risk through agreed and documented ‘rules of the game’ (sometimes called a family charter), which spells out the foundational ingredients of the family firm.
These foundational values need to be more than documented. They need to be ingrained into the firm and the incoming generation of family owners and managers. After all, if you want them to run the firm to the same principles and values, they have to be their principles and values also.
The rules of how the family work in the firm are also important to define and embed in the next generation:
Where families go wrong, is they try to address these issues in the midst of a conflict or issue. The best time however is to do this before there’s an issue, while everyone is still friends.
These ‘rules of working in the family business” set the expectations of the next generation and give the whole family a framework to make important appointment and performance related decisions.
There’s a lot of discussion required to come up with these family firm principles, values and rules and sometimes it can be a little sensitive. A good facilitator can assist you in working through the issues and fleshing these out into a family charter.
Timing is important and the great news is this can all be done under your watch and in place well ahead of time. It is also a great signal to the successors that things are moving. This can also help settle any anxiety to the contrary.
Preparing the next generation
Having defined your family charter, the next step is to prepare the next generation for success. The issues at play are:
Do they have the right skills, experience and ability
Is the leadership appointment clear or do you have multiple contenders from within the family
Do you appoint an external CEO
The best place to start is with succession planning. Who are the potential successors for the senior roles and which of those could the family feasibly take in the short term. Closely coupled with this should be a focused and defined professional development program to help them get ready for that potential next role. This should include formal training they might need, and also provide exposure to the jobs and expertise they need to be familiar with. For example, one family firm we worked with invited the next generation to portions of the board meeting so they had an opportunity to role model senior decision making and conflict resolution.
Get Independent, Objective Support
In terms of assessing whether they are ready for the role, the best approach is to undertake a formal performance assessment against a formal job description. If they weren’t a family member, would you hire them into the role? The answer may be yes, but often it’s “yes, but not yet”.
Identifying and communicating these performance gaps is an important part of managing expectations and designing the professional development program for your future leaders. Ideally you’re doing this during annual performance reviews during their career so the potential and the performance gaps are known and agreed between all and there are no nasty surprises for your future leader.
Sometimes succession needs to happen in a more accelerated way and in cases like this, incoming executives can be supported by professional coaching, an interim CEO and by the board. A board can play an important role in managing the succession process and ensuring its success. A board, potentially still staffed by the parents, can provide the necessary guidance for the next generation, and be the custodians of the family firm culture, principles and values. A board plays a critical role at times like this in ensuring the company maintains its core values, particularly at times of a leadership change, when a new leader is wanting to make their own mark on the company.
The other way a board process can support the transition is through the relationship between the chair and the CEO. We generally recommend an external chair of the board as this provides a circuit breaker in family dynamics. One of the chair’s roles is to be a coach and confidant to the CEO and this again can be a useful support to the incoming family leader.
Getting succession right in a family business can mean the difference between enduring success or a fatal implosion of both the firm and the family. Board Associates has a wealth of experience in supporting family firms and our founder, Matt Dustan is a researcher in this field at the Queensland University of Technology. If you are facing some of these challenges and decisions, you may like to schedule an informal chat with Matt by contacting his PA at info@boardassociates.org