Importance of Choosing the right successor

Choosing a successor for your business doesn't always mean choosing someone like you or even someone you like. It entails choosing someone who is not only ready for the job but also has the respect of key team members and other stakeholders and be able to guide the company into a planned future. Of necessity, this requires a clear understanding of the plans for the company and the resources required for the implementation of that plan.

Where the goals of the family include the maintenance of the family relationships and the growth of the business, a successful transition of leaders requires clear goals and careful planning.

Same or different

Typically the first generation business owner is the entrepreneur who has built the business with hard work. In the words of Michael Gerber, "They are dogged pursuers of their vision, hang in there when everyone and everything in the 'objective' world is telling them it simply won't work. They turn the business upside down, and surround themselves with passionate seekers of the truth ... and talk, talk, talk, talk to everyone they can about the truth and beauty of their vision."

Some people have children who not only have the capacity for this level of passion and drive, but are waiting for the opportunity to put it to work. In many instances, parents fear this child as the child has not learned the technical side of the business, and demonstrates characteristics described by one father as 'undisciplined'.

Other children have been sent off to Business School, or undertaken some other course of study, and these people sometimes demonstrate a much greater aptitude for risk management.

Now, if dad has been the entrepreneur described by Michael Gerber, then it is likely that he will not readily accept the risk averse successor as leader of the business. What we know is that there are many examples of family businesses under the leadership of one of these entrepreneurs that outperform the larger corporate owned businesses. There is a place for the entrepreneur and some businesses desperately need an entrepreneur to lead them.

Similarly, if the business owner has been an accountant or similar rational type person in the management of the business, then it is likely that he will fear the child who has the characteristics of a Michael Gerber entrepreneur.

If the decision is around what is best for the business, then a planned and reasoned approach is required and the starting point is the assessment of where the business is at.

There is at least one characteristic that will almost certainly be different and that will impact significantly on the role and the manner in which the role is to be delivered. That is, the first owner entrepreneur of the business is unlikely to have reporting requirements and accountabilities. Even if he does have those requirements, his focus on vision and getting the job done often means that this requirement does not have priority. On the other hand, the successor will have to report and be accountable on a regular basis to the owners of the business be that owner the original owner or the siblings of the new leader. It is this difference which gives rise to the greatest cause of conflict within families in business.

The Planning Process for Succession

What type of leadership will be required for this company in the immediate future? Is there a need for some consolidation within the business, maybe some pruning of unprofitable products or services, is there cash and resources available to make acquisitions of other businesses, can the business be made more efficient, is there a capacity for organic growth?

This assessment process can be difficult, but if the entrepreneur's vision for the company is what has driven it to date, then the decision may involve consideration of who can maintain that vision. Alternatively, if the vision needs to be changed, then an understanding of the new vision and the acceptance of that new vision by the owners and other stakeholders is critical to a decision on leadership change.

In making an assessment about the vision, it is important to involve the appropriate stakeholders. If the succession planning exercise also contemplates a change of ownership to family members in the near or immediate future, then it is a good idea to involve the family members in that process.

Many families also use non family advisers or board members. These people often assist to bring a rational approach to the assessment and the strategies to meet the agreed vision.

Having determined vision and strategy, it is appropriate then to consider the requirements for the job of leadership.

Best Person for the Job

Some families have a cultural background that will give preference to the first born male in the family. Others will consider the position needs to be given to the best person for the job. In more recent times, we are seeing more families decide to give the job to the best person to achieve the vision for the business, and that person is not necessarily a family member.

Either way, the skills and work characteristics of the appointee need to be assessed and measured against the criteria of the requirements for the job of leadership. In this way, any gaps in skills required can be identified.

If the person to be appointed does not have all of the skills or experience required for the job, and it is rare that they will have the lot, then there needs to be a plan to cover the gap. So, if , for example, the child who trained as an accountant and has a more risk averse approach is to be appointed as he or she is the preferred candidate, then it may be possible or desired to appoint an appropriate person as Sales and Marketing Manager in order to cover the drive required to achieve the desired growth. Similarly, if the undisciplined entrepreneur is to be preferred, then it may be necessary to also appoint the steadying influence to work along side of that appointed leader.

(It is not my intention to characterise all accountants as non entrepreneurial nor to characterise all sales and marketing people as irrational.)

Training for Leadership

Where it is intended that the change in leadership of the business should be seamless, it is important to commence the process early to allow the appointee to be trained, to gain experience, to develop ideas and work with mentors.

Depending on the gaps in the analysis of requirements for the job and skills available, there are training courses available to assist in bridging those gaps.

Using an early assessment allows the candidate to be appointed to a minor management position to practice their skills and develop the work characteristics which will be required. It also allows for the reporting and accountability requirements to be established and to become a part of the job of leadership.

Communication of the Appointment of a New Leader

When should the appointment be communicated? If the appointee is given a minor management role on the basis that he or she is on trial or is a learner leader, then it is generally better to wait until the trial has been successfully completed or the training process has demonstrated that it is working successfully.

Communication is generally first within the family, then to employees and other stakeholders. In some families, the appointment of one person is anticipated by all other family members, and even in those cases, it is preferable to make the appointment official to avoid arguments amongst siblings, particularly after the parents have passed away.

All communication should be supportive of the person being appointed and encourage the respect and trust which will be required for that person, whether the appointee is a family member or not. The communication might also indicate any change in vision which might be intended by the appointment of that person.

Respect and Trust for new Appointee

An essential of good leadership is that the leader commands the respect and trust of the followers and all other stakeholders. To a large extent, this is for the new appointee to develop.

However the most common reported problem comes about because the original business owner has not adequately retired from the role. That original owner has often developed very high levels of trust and respect amongst employees. The new appointee will almost certainly want to make his or her mark on the business and may try to implement new ideas and systems. The introductions need to be carefully planned and explained to avoid any suggestion that changes are only being made for the sake of making changes, or that the new leadership did not agree with the previous leadership.

The retiring original owner also needs to be very careful to avoid the 'grumpy old man' syndrome, where he is seen to criticise or not support the changes being made and intentionally or unintentionally undermines the respect and trust of the new appointee. New appointees can use the respect and trust of employees and other stakeholders for the original owner by involving him in the decision and change process.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.