Australia: Succession Planning Series: Transition of Leadership

Last Updated: 24 February 2013

Choosing the successor

Parents sometimes have the idea that they would like one of their children to take over the management of the family business from them. This desire often ignores the skills required for the development and growth of the business, the skills and abilities of the child and the wishes of the child. Some children then take on those responsibilities to please the parents and not because of a burning desire to see the business grow and succeed.

The process is often accompanied by fears, which, in many cases are not expressed. The likely successor might have a fear that he cannot do the job to the satisfaction of the parents, or that he cannot meet the expectations of other employees in the business, or that he will not be accepted by the other employees or suppliers. The parents may also have fears, like can they do the job, has the training been adequate, they will not take the time to develop the relationships, and so on.

The process of selection of a successor to business leader should include:

  1. Setting the business goals and strategies;
  2. Assessment of the needs of the business;
  3. Assessment of the leadership skills required to meet the needs of the business;
  4. Assessment of the skills and experience of the nominated leader;
  5. To the extent that the gap is significant, then it is appropriate to invite other applications for the position;
  6. If the gap is not significant, determine the training required to bring the nominated leader up to the required level of competence;
  7. Make the offer in writing including the role description, the goals of the business, the reporting requirements and the performance requirements of the position.

It is generally regarded that children of the business owner should not be pressured into taking the position. It is important that the child wants the position and will take it on with at least the same degree of passion and commitment about the business as the parent had.

Give the prospect a trial run. One of the parables of Jesus was about the master who gave equal amounts of money to each of three servants. The master then took off and left the country. When he returned, the first servant returned the money to him ten fold, the second returned the money five fold. The third servant was risk averse and had hidden the money under the bed and returned the original amount. In each case the servants were rewarded according to the return they had earned. I know which servant I would appoint as CEO of my business. One selection method for people already working in the business is to give them responsibilities, stand back and let them perform. Measure the success of their endeavour to see if they have achieved the desired outcomes in an efficient and business like manner.

Incumbent preparing to hand over

The business owner needs to understand the importance of preparing a successor to leadership of the business. Having reached this position, the owner should put in place a plan to prepare for that transition. Sometimes the first business leader has what is sometimes known as entrepreneur's disease, that is they close off to ideas and contributions, and the leadership of others. This can create huge difficulty for a new leader who may be deprived of opportunity to learn, contribute and establish relationships. Where the successor is a child of the original owner with entrepreneur's disease, this experience can be very hurtful for the successor.

Where the business owner has the entrepreneurial spirit, he is often a doer. He wants to get on and make things happen. He tends to be impatient and use a directive style of leadership. What is required in the selection process is a challenge style of leadership, where the proposed successor is given the challenge and then stand back and let him perform. Support and encourage, but don't direct. Observe the performance and ask an independent non family member to observe and comment on the performance as an achievement of the goals of the business.

In this process, the incumbent is already preparing for his own retirement from the role. If it is intended that the incumbent will take on a different role, for example, chairman of the board, then he should also be preparing for that new role. In the role of board member, the incumbent can bring valuable insight and experience to the board without being concerned about the day to day operation of the business.

There are a number of ways in which the new role of company director might be learned. There are courses available through Family Business Australia, FBA Forum Groups, and the Australian Institute of Company Directors. A number of books have already been written on the role of the board and corporate governance. Talk with professional advisers, other company directors and business associates. Ask an adviser or business associate to come on to the board and assist in the establishment of a board and proper corporate governance procedures, even for a limited period.

Many of the first generation entrepreneurs enjoy the hands on experiences and will miss the day to day operations. If they can be given a workbench and some tools and a role of research and development, they can often satisfy that desire for hands on experiences. They may even take on some specific projects around improving efficiencies in some areas of operations. Some of them will have other interests to pursue and they should be encouraged and resourced to undertake those interests.

Preparing the incoming leader for hand over

An incoming leader of the business needs experience in the role to be undertaken. This can be achieved in businesses other than the family business, or in some management roles within the business. Where particular skills are required for the company, then the training process might have some emphasis on those areas of management.

The incoming leader might be involved in the setting of the vision of the company, strategy development, discussions with advisers and the company's banker. He or she will know and understand the drivers of the business, and know those people on whom he may rely for advice and guidance.

If change is required in the business, then it is advisable that all such changes be well planned and the implementation strategies discussed and agreed with key people in the business or the advisers to the business. An incoming manager will need support through the change process.

Acceptance of other family members of the appointment

In many instances, the leader amongst the siblings is reasonably obvious. That person has shown greater levels of interest in the business and the management role. He or she has developed important strategic alliances both within the business and outside the business. In these cases the choice of leader is obvious and generally more readily accepted.

Where there may have been some competition among the siblings for the position of CEO, it is important to explain to the others the reasons for the appointment, the role assigned to the incoming leader and the strategic goals that have been set for the incoming leader.

Whatever the circumstances of the appointment, it is essential to family harmony that the appointed one works to earn the trust and respect of his or her siblings. This is generally achieved through open communication and seeking the involvement and input of the siblings into the establishment and achievement of common goals for the business.

Where the siblings are working in the business, those not in management can assist by supporting management decisions and avoiding behaviours which might undermine those decisions. If there are issues within the family, either related to the business or other family issues, then it is advisable to contain those issues within the family. The leader may establish a family council, that is, regular meetings of the family members to discuss all such issues.

Acceptance within the business

The leadership role in the family business is an important role. The first generation family business leader will possibly have developed close relationships with the employees, some of them feeling that they are a part of the family. As the business has grown, and the management requirements have changed, some of those relationships may need to be challenged. This can be a difficult time in the business and the incoming leader will require clear goals and implementation strategies.

The hand over should include formal introductions to important business connections so that the outgoing leader is telling the suppliers, advisers, employees, and customers of the change in leadership. That formal introduction can be face to face or even by letter. In this way, the outgoing leader has been locked into the decision to pass on the baton and having clearly stated the position, all actions need to be consistent with that announcement and introductions.

Most people recognise the necessity to pass on the baton and are accepting and supportive of it. It is all a part of the game of life. Pass on the baton efficiently and effectively, start a whole new race and enjoy the experience all over again.

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.

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