For most family businesses, planning for succession is the toughest and most critical challenge they face. Yet succession planning can also be a great opportunity to maximize opportunities and create a multi-generational institution.
By Lois Lang, Contributing Editor.
Family-owned businesses remain the backbone of the convenience store industry. Many chains have been successfully passed on from one generation to the next, but more and more family executives these days seem to be expressing concern about passing the family business on to the next generation.
When it comes to family business succession planning, one thing is certain: Most family business leaders don’t plan for it, they don’t do it well, or they wait to do it until it’s too late. While the CEO longevity in non-family businesses is an average of six years, for a family-owned businesses CEOs tend to stay for 20-25 years.
Sure, that long tenure contributes to leadership stability and consistency, but it can also fuel flat growth, narrow business focus, and decreasing leadership drive.
Additionally, when the CEO and other top level executive family members do not step aside in a timely manner, it causes a high level of frustration in the next generation who is ready to charge forward and make its mark.
Once it becomes clear that the children might reach their mid- to late-fifties before taking over, it becomes hard to hold on to the ambitious ones. That’s why all family businesses need to have a solid succession plan in place—one that helps the senior generation leave with ease and welcomes the well-prepared next generation.
While succession planning can happen at any level within the organization, we commonly think about the top five to eight key positions for a written, structured succession plan. So as you plan your company’s future leadership, keep these points in mind.
1Think beyond seniority. Many family business executives choose their future leaders based on seniority (i.e.: “She’s the oldest, so she will be our next CEO.”). In some families, the next in line is the oldest male. Of course, a single owner can make the easy decision to pass the business leadership to the child of his choice. But 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. In other words, often the easy choice or the obvious choice isn’t the best choice. Therefore, be open to broadening your search beyond the next of kin.
2 Embrace a more professional process of skill evaluations, performance assessments, and reviews of career history. The more thoughtful, objective, and inclusive the process of bringing on the next leader is, the more likely that the transition will be embraced. 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. Implementation of the plan 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.
3 Rank possible successors based on key criteria. Rather than just appoint the next oldest family member to the leadership role, 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
• Geographic mobility, if appropriate
• Learning agility
• Prior leadership positions—size and scope of leadership responsibilities
• Advancement potential
• Advancement desire
• Interpersonal skills
• Assessment of the individual compared to the company’s values and leadership competencies
• Past performance ratings
• The ability to take risks
• Decision-making ability
• Problem-solving ability
Doing this for each potential successor will help you see which ones are best positioned to move the company forward. Finding a successor with the right mix of skills, attitude, drive, character, and experience that matches your business will ensure the family company succeeds for the long term.
4 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 emphasis you place on prepping the next leader, the smoother the transition will be.
5 Consider a non-family leader. When a family business member utters the words, “Let’s consider a non-family CEO,” the first reply is usually a colorful no. However, a non-family CEO frequently brings diverse, in-depth experience to drive business growth, bringing professional alliances, partnerships, and strategy opportunities.
They can be great mentors for the next generation of family leaders—often then known as “bridge CEOs” from one generation to the next.
While the family may hold all the stock, it is critical to develop a performance incentive that will reward and retain the non-family CEO and an employment agreement that will fairly treat and protect the CEO.
Choose Who’s Next
Thoughtful, on-going planning for succession is a must for long-term business success and sustainability. Therefore, start now. Develop a clear plan about the succession of senior leader positions, including who will be next, when the transition will take place, and how that successor will be groomed to make the move smoother. The more planning you do now, the better the future will be—for you and your family business.
Check Your Emotions When Evaluating the Next Generation
It’s quite common for sibling rivalries to ensue when kids are competing for who is perceived as their parent’s favorite child. But when you add to the equation such parents (and even living grandparents) owning and operating a significant family business, the stakes become alarmingly high.
The pursuit of the grand prize in terms of succession planning and ultimate control looms larger than life itself for all concerned. That may be even in cases when such a potential event is gradual and perhaps a decade (or more) in the future.
Nicholas Narlis, president and founder of AssetSync LLC, which specializes in family business planning, said companies may already have several children and other relatives gainfully employed in a multitude of positions within your company, some of whom are also being either groomed for or are already in higher-level jobs. But to stay on course, you need to periodically evaluate both the impact to date and the potential of each employee (family member or not) in the organization. “There is a huge difference between filling tactical jobs within the organization with trusted family members vs. considering them as viable candidates to one day strategically lead the company or join the senior executive management team,” he said.
All too often there are no viable candidates from within the respective ownership family trees to be ideal successors.
“There are perceived checks and balances already in place. For example, you may already have (or plan to hire in the near term) professional managers from outside the family in certain pivotal operational, finance, sales and marketing positions,” Narlis said. “Nonetheless, family members are still systemically being placed in key roles or are being seriously considered without much rational thinking taking place. The emotional aspect of children or spouses pleading on their own account or for other loved ones can take its toll on the objectivity of even the most seasoned of owners.”
No Guarantees on Leaders
It is only when you look at your own life map that you realize that being born into a family business is merely the starting point. It is nothing more than drawing an inside post position for a highly competitive horse race. Regardless of the nurturing provided as a child becomes an adult in terms of education and on-the-job training, there is no guarantee that such family members will ever be suitable for the company’s most visible and prestigious positions.
Narlis said leaders must begin by asking themselves a few questions:
* Are all viable candidates (including family members) to fill critical positions thought of by senior management and their trusted advisors as enhancing the chances of the company’s continued success?
* Is a process already in place that never makes exceptions for permanent hires who cannot meet the standards of a detailed job description and desired qualifications, with extra enforcement emphasis on the most critical positions?
* Have the owners provided the company a documented plan and timetable of succession planning for key positions in the event of both timely and untimely separations of individuals (including themselves) in such key positions?
“If all three of these questions cannot be answered in the absolute affirmative, set a new course on your life map immediately. The biggest risk here is having the next generation run the family business into the ground. It literally happens all the time. Your reward will be significant for making the extra effort to do your succession planning up front to select the right people for the job,” Narlis said.