Tag Archives: Succession

Next-Generation Leadership in the Family Enterprise Part 2

Steve Miller
Steve Miller

In a two-part blog post, Family Business Group consultant Stephen P. Miller highlights some key findings from his recently completed research on how nextgeneration family leaders develop leadership skills.

My research on nextgeneration family business leaders demonstrates the importance of family climate on the degree to which nextgeneration family members learn leadership skills.  Ironically, some of the leadership characteristics we often observe in entrepreneurs who build successful family firms may actually work against them in their efforts to prepare the next generation for leadership responsibilities.  The kind of hardcharging authoritative leadership style that may have helped a senior family entrepreneur overcome the significant challenges of establishing a successful family firm negatively affects the development of nextgeneration leaders.  Nextgen family leaders need age and experience appropriate opportunities to practice decision making, take risks, enjoy successes, and recover from failures.  A senior generation leader who makes all the decisions and sets all the rules can unintentionally deny nextgeneration family members the experiences they need to develop their own leadership skills.

The study further suggests that nextgeneration family members interested in playing a leadership role in the family business should consider taking responsibility for their own development of leadership skills, particularly emotional and social intelligence competencies.  If the family climate is one characterized by senior generation leaders who exercise unquestioned authority, nextgen leaders would be well served to suggest or create some area of the business for which they could be responsible and held accountable by others.  If the senior generation refuses to allow it, then the potential nextgeneration leader may be wise to seek experience with genuine responsibility and accountability outside of the family firm.  The research is abundantly clear that shouldering real responsibility is strongly related to emotional and social intelligence competencies demonstrated by the most effective leaders.

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Pay for Succession?

David Ransburg
David Ransburg

When most family businesses hear the phrase, “you will pay for succession,” they likely think it means that there will be pain associated with the process of transitioning from one generation to the next. I’m here to suggest another, more positive way to think about that phrase… and this new way of thinking comes from some of the world’s largest publicly traded companies.

A recent article in the Wall Street Journal identified a growing trend where publicly traded companies have begun providing outgoing CEOs with compensation that is directly tied to grooming their successors.

For example, outgoing Intel CEO Paul Otellini had the opportunity to earn up to $4 million in extra pay if he successfully met certain criteria associated with preparing his successor, Brian Krzanich. While the company’s Board of Directors determined that Mr. Otellini had met some of that criteria, his performance was not sufficient to earn the full bonus – he received half.

This new approach is, I believe, especially interesting for family businesses because succession is one of the biggest challenges – if not THE biggest challenge – facing many family firms. Succession – or as we at FBCG like to call it, “generational transition” – is an extremely complicated issue that is influenced by many factors (e.g., Is the next generation prepared to take over the family business? Is the business viable?), but one of the common roadblocks to successful transition is often the incumbent’s reluctance to let go. That reluctance alone can be a very challenging knot to loosen, but the publicly traded companies mentioned above have given us another tool with which we can tackle that reluctance “roadblock”: pay.

While extra pay alone is unlikely to be sufficient to get most incumbents to let go, it can certainly be a powerful incentive to increase the likelihood that they will do so. From now on, perhaps, the idea of “paying for succession” will take on a new, more positive meaning.

Have you ever paid an incumbent for grooming their successor? If so, how well did it work? And, can you think of other forms of “pay” that might be even more effective than money?

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Leadership Transitions – The Power of a Date

Kelly LeCouvie
Kelly LeCouvie

Are you developing a successor for your position, with the objective of transitioning out in the foreseeable future? If so, you have likely experienced the apprehension and emotion associated with that process. We have worked with leaders who identify a transition date and others who have not, with successful outcomes in both scenarios. That said, we encourage you to think about identifying a specific transition date for a number of reasons:

  • It sends a message to your successor, your employees and other stakeholders that you are serious about the transition;
  • It motivates you to develop key milestones in the process that need to be met in advance of that date;
  • It prompts your board to set expectations for progress reports along the way, and provides you with a source of feedback on that progress;
  • It helps you envision and plan for your role beyond that date – perhaps as board chair, as a retiree, as a leader in a new capacity;
  • It sets in motion a variety of other decisions throughout the organization that help prepare for the transition.

Setting a transition date is definitive, and makes it very real, and perhaps a bit scary. Yet if it doesn’t feel real to those around you, the energy invested in the transition might be insufficient to meet your expected outcomes. This might be the biggest business decision you ever make; setting a transition date is one of many steps in ensuring transition success.

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Siblings to Cousins: Fear not the Larger Group

Amy Schuman
Amy Schuman

Many families are daunted by the task of transitioning from a relatively small sibling stage to a larger and more complex cousin stage.

However, there are advantages to the larger cousin group that may not be readily apparent, for example:

  • First, the cousin relationship is usually less intense and history-filled than the sibling relationship. There is more distance and healthier boundaries between cousins than between sisters and brothers. This can make conflict resolution and decision-making easier with cousins, even if the group is larger.
  • Second, the larger cousin group is usually more accepting of policies, procedures and ‘one person, one vote’ approaches than the smaller sibling group. Siblings can be more uncompromising and inflexible, expecting to see their preferences prevail in the smaller group – each perhaps at times assuming that they would get to be ‘the decider’ as their parent had been.  Cousins tend to have an easier time with the notion of collaboration and shared authority.
  • Third, the greater diversity in the larger cousin group can bring valuable strengths to the family and the business. Diversity in geography, age, lifestyle, occupation, and hobbies brings tremendous richness and a plethora of perspectives. Families that can be open and welcoming of this variety find themselves greatly enriched, more resilient and over time, more reflective of the wide world.

As you move from siblings to cousins, rather than being daunted by the larger size and complexity of the ownership group, consider exploring the advantages and finding ways to harness them to your benefit!

Our book, From Siblings To Cousins, Prospering in the Third Generation and Beyond,  (Aronoff & Ward) is a great primer on this subject.

A helpful article that explores the dynamics of later cousin groups is: “The Challenges of a Large Shareholder Group”, by Klett and Weichers in The Family Business Succession Handbook, available from Family Business Magazine.

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What is Stewardship?

Jennifer Pendergast
Jennifer Pendergast

Stewardship is a term often used when describing the perspective of family business owners.  As many owners of family businesses seek to pass their business on to future generations, the term stewardship is an accurate one.  The dictionary definition of stewardship is “the careful and responsible management of something entrusted to one’s care.”  This is quite different from the term ownership, defined as “the legal right of possession, full claim, authority or dominion.” 

I see stewardship and ownership as two sides of the same coin – the former emphasizes responsibility, the latter emphasizes rights.  In truth, ownership implies both rights and responsibilities.  Too often, owners are concerned about their rights – to a dividend, to a say in how the company is managed – but pay less attention to their responsibilities.  Yet, if they seek to pass on their business to future generations, owners should be equally or perhaps even more concerned with responsibilities.  What are the responsibilities of owners?  They include:

  • Ensuring the business is well-run, ideally by electing a qualified board of directors who oversee a capable management;
  • Planning for the orderly transition of ownership across generations;
  • Staying informed about the business and its operating environment;
  • Representing the business and family well to employees and the community
  • Investing time in education to ensure one is prepared to make big decisions around the business.

As the old adage goes – to whom much is given, much is expected.  An emphasis on stewardship responsibilities will help to ensure that the aspiration to pass the business will be achieved.

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Questions Students Ask Most

by John L. Ward

For the past few years we’ve kept track of the questions most often asked by MBA students who come from business-owning families. Would you suggest any other pivotal questions?

  1. Should I join my parents’ business? Culturally, do I have a choice?
  2. When should I join the family’s business – especially if it’s a large business or large family?
  3. Can the family business fit my dreams? Can I bring my personal passions to the business?
  4. Will I be encouraged to grow the business or struggle with resistance to change?
  5. What will it be like to work with siblings? Can we have a sibling partnership based on meritocracy?
  6. How can I best engage my family in sensitive continuity planning topics?
  7. What wise tips are there for developing a business together with my spouse?
  8. What business school courses are the best to prepare me for working with my business-owning family?
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Provide Next Generation Experience Without Risking the Entire Enterprise

Otis Baskin
Otis Baskin

So, if as we discussed in our last post next generation “heirs apparent” need real P&L experience how can this happen in a way that helps everyone develop confidence without putting the entire enterprise at risk?

The answer, of course, will be different depending upon the family and the business itself.  But here are a couple of examples:

  • Some family businesses have subsidiaries where the P&L can be judged separately from the main business.
  • When family businesses decide to grow through M&A activity they may have the opportunity to allow a developing leader to take-charge of the P&L of a newly acquired organization for a significant period of time to prepare its operations to be better integrated into the parent company.

One great family I know found an interesting solution to what was becoming a bitter family conflict.  Father and son were simply not able to work together and the tension was becoming unbearable.

The father was a “production guy” who had built great value in his business through innovation.  Son was a “marketing guy” who saw that the national market in which his father had taken the company required a different approach to compete.  The rest of the family believed this son was the right one to succeed his father at retirement but the father could not see that ability in his son.

When an opportunity presented itself to enter a different business in the same market as the family company the son pitched the idea to his dad.  The father saw danger in integrating this new type of business into their proven business model but offered to finance a new start-up if his son would leave the family business and run the new enterprise.

The father’s motives may have been a combination of helping his son and relieving tension in the family and the company but it turned out to be a brilliant strategy.  When the son’s company proved the success of the new business model over the next few years his dad was proud and began to see his skills in a different light.  Today, the two companies have merged and the son has succeeded his father, “just the way dad always dreamed it should be.”

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Your Children Need an Opportunity to Fail

Otis Baskin
Otis Baskin

I am often struck by how difficult it is for brilliantly successful people to achieve their ultimate goal – seeing the business they worked so hard to build continue in their family.  Sometimes the very person who has dreamed so many years that grandchildren and great grandchildren would be part of the enterprise that bears their family name becomes an obstacle to the dream coming true.

Some want to work until they actually die at their desk without considering the devastating impact such a cataclysmic event would have on their family and their company.

Others can’t see the necessary skills and business acumen in their children who are available to succeed them.

Both of these scenarios can sometimes benefit from adopting a form of the Nike slogan, “Just Do It”.  Not to suggest recklessly delivering the keys to a Ferrari into the hands of someone with a learner’s permit.  But it is equally unfair to accuse someone of reckless driving when you have never seen them behind the wheel.  The ability to have the opportunity to prove your mettle in real P&L responsibilities is the crucible that will provide either the confidence for succession or reveal what needs to improve before succession occurs.

Too many apparent heirs to the leadership of their family business have never had the opportunity to develop their confidence and the confidence of others in their ability to assume real responsibility.  When children are protected from the opportunity to fail neither they, their parents nor their siblings have enough data to develop the confidence necessary for successful succession.

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Can I leave it to the children?

Albert Jan Thomassen

I often get asked this question by business owners who wonder if they should put the burden of owning and running a family business on the shoulders of their children.

They remember the sleepless nights, tough times and challenges they had to face in their own business life. In my opinion, a better way of phrasing the question might be: “Why do I want to pass on the business to my children?”

In a recent seminar this question was asked to the participants all facing succession in the near future.  Inner motives characterized most answers from the senior generation: ‘It brings pleasure and is motivating’, ‘It makes us proud if they want to continue the business’, ‘Just ego-driven: the legacy will be continued’ and ‘We want to give them the opportunities we have had’. Some gave an answer by giving advice to their children: ‘If you want to be a business owner then being an owner of your own family business is the best alternative you can imagine’ and ‘You have to work to make a living, so may as well work for yourself’.

An inner motive to pass on the business does raise the question of if you can bother your children with the business – as the desire to transition is coming from you – rather than from them.  While having this motivation is fine, it is also important that you encourage and allow your children to discover for themselves their own inner motivations and talents.  You will not be ‘bothering them with the journey’ if it is a journey of their own free choosing.  If they are eager for the challenge and equally motivated to take over the legacy, then you can really be proud that this brings pleasure to you both that the business will make a successful generational transfer.

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Why Do We Wait Until The Last Minute?

Joe Schmieder

“We have a looming transition with no real plan.  Not sure why, but my father has just now decided he would like to get out of the day-to-day operations and sell the business to my brother and me before the end of the year!”  Why do senior family leaders often wait until the last minute to address succession?  Is it simply human nature?  Hard charging family entrepreneurs are more inclined to work on growing and developing the business than to work on family leadership and ownership planning.  Succession is not a topic that people dwell on because it usually only happens once in a generation.  It is tough when a patriarch or matriarch has to select the next leader amongst three children or go outside the family for leadership.   Deciding how to transition ownership is another difficult task – should the stock be sold, gifted or some combination?  Should those family members working in the business get more stock, a controlling interest?  How can this be done fairly? These are tough questions that cannot be addressed quickly.  Thus, they tend to get delayed or avoided.   Yet the keys to successful transitions are communicating and planning.  Most family business leadership and ownership transitions take three to ten years depending on size and complexity of the business and family.   Since succession is long-term, complex and emotionally-tied to family dynamics, a succession task force that includes independent outside board members or othertrusted advisors often works extremely well to keep the process objective and moving forward.   The main goal of a task force is straight-forward:  to ensure an effective leadership and ownership transition.   Members of the task force provide guidance and checkpoints to keep the process moving forward in a positive manner, making adjustments along the way when needed.  This takes a huge burden off the senior family members and greatly improves the probability that both the family and business will continue to prosper in the next generation.

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