Tag Archives: Wall Street Journal

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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Trouble in the Corner Office?

Chris Eckrich
Chris Eckrich

A recent Wall Street Journal article (At Family Firms, Do CEO’s Work Fewer Hours? by Rachel Feintzeig, Wall Street Journal Online, March 5th, 2014) referenced new research by professors at Harvard, London School of Economics and Columbia that measured family firm CEO’s as working approximately 8% fewer hours than their non family counterparts.  Is this an indication of impending underperformance?

Vibrant family businesses are often run by CEO’s who have mastered the art of working on the business rather than in the business.  They may work intensely during much of the year but also find ways to create time for thoughtful reflection on their businesses and are constantly discovering ways to improve not just today’s bottom line, but future opportunities as well.  Their insights are as likely to emerge at 5:30 a.m or 9:00 p.m., and not just during office hours.

Signs of a vibrant family business include:

  • Clear and aligned strategic direction from the ownership group, to the board to the CEO and management team;
  • A culture of high performance in which problems do not fester unattended;
  • An engaged workforce in which each individual understands how he or she contributes to the company’s objectives, and has the resources necessary to meet assigned goals;
  • Mutual trust between ownership, the board, the CEO and the management team;
  • A dynamic and iterative succession/continuity planning process in which the CEO and the family ownership group are actively engaged in achieving generational transition (assuming they have agreed on doing so); and,
  • A constant drive to meet or exceed ownership’s clearly stated objectives (which may include both financial or non financial measures).

Signs of a family business whose future may be troubled include:

  • Owners, directors or executives who are not sure where the company is headed;
  • Acceptance of correctable company problems and weaknesses as just the way things are;
  • Managers or employees who do not have clarity on their work priorities or goals;
  • Distrust between the ownership group, board and/or CEO;
  • The inability to discuss or make progress on succession and continuity challenges;
  • Little effort to clarify what ownership’s objectives are or limited drive to achieve those goals.

CEO’s spending their time driving towards becoming or remaining a vibrant family enterprise position their businesses for future success while CEO’s who lack that drive will generally allow trouble spots to creep into the picture.  Regarding time spent at work, perhaps the best question to determine whether there is trouble in the corner office is, “What are you doing with your time?”

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