Ask About Succession -- Part Three
I'm the founder of a pretty good sized business I built up myself over many, many years. My wife is on my case to retire and let one or more of our kids take over. Any helpful hints on how to do this painlessly?
Here's the conclusion of our answer to your quest for succession strategies. In part one of this series, we stated that conflict between the founder of a family business and his or her successor is a matter of degree. In part two, we began a discussion for reconciling the intergenerational conflicts.
In this third and final part, let's continue our discussion of reconciling the goals of the two generations. Retirement goals must be defined by the first generation (that of the business's founder) and communicated to the successor, so that conflicts may be ironed out in advance and misunderstandings don't arise later.
For example, Fred Founder has worked hard and should be able to explore new ventures. If Sam Successor is informed of this interest in advance, a way to accommodate both their needs can be worked out. The new venture will be viewed as a mutual goal to be managed rather than a power struggle to be won.
Personal and career goals need to be outlined by the successor generation. Will the successor be given the opportunity, the capital, the authority, and the responsibility necessary to achieve success in and for the business, as well as adequate compensation to support family needs during the "dues paying" period of the transition?"
Consideration needs to be given to time commitments that increased responsibility will place on the successor and how this issue may affect family life. Expectations of the founder must be clearly understood by the successor, as well as spouses or other family members, with regard to time requirements, compensation, and scope of authority during the transition period. If any of these conflict with the successor's personal or career goals, the transition may be doomed to fail.
Training, on the job and otherwise, is the critical ingredient that can put success into a family business succession plan. It can take many forms. Much teaching is done by example. Setting a good example for your successor in all aspects of business and family life is essential. Formal education, not just in the specialty of the business but also in management and accounting, is immensely valuable. And actual experience at a job outside of the family business is certainly preferable.
Experience in all aspects of the family business operation, from sweeping the floor to driving the truck or counting the inventory, is necessary. Where the successor is active over a period of time in the business, he or she will not only become familiar with what it takes to run the firm, but will also have a chance to interact with employees, suppliers, and customers and gain their confidence and respect. A formal job description for each task assigned during the training mode will clarify everyone's expectations and enable useful periodic performance evaluation and feedback to the trainee.
Many universities operate centers for family business education and research. Among the most prominent are Baylor, Cornell, DePaul, Loyola of Chicago, Northeastern, UMass, USC, and Wharton. Contact the universities in your area to see which workshops they offer.
There are also many regional conferences on family business topics offered during the year. For a calendar of upcoming events, check out the web site for the Family Firm Institute.
Timing the transition of control of a family business can take place over a period of months or even years, depending on the needs and wishes of the family members and the business itself.
As the successor gains confidence and credibility in day-to-day operations and dealings with outsiders, the founder can back away into an advisory role. If the founder encounters difficulty in "letting go" of the business entirely, the successor must be prepared to be reassuring and supportive and ensure some type of ongoing role for the founder so that he or she feels included.
If the successor resists, it may only cause the founder to become more rigid and the successor to become more frustrated. Transitions are stressful times and must be dealt with on an objective basis by the successor at all times.
A transition plan or timetable should be roughed out initially to assure continuity of management and should be reevaluated periodically to see if goals are being achieved. The transfer of power can be seamless and subtle if good communications and careful planning are practiced by all parties to the transition.
Good luck and a good sense of humor are also handy tools to take to this tough task. Have a successful succession.