Family Business Succession Planning
Succession is not an isolated issue; developing a succession plan requires an examination of the entire family business strategy. Consequently, succession can become an important catalyst that compels a family business to finally make changes that previously never got beyond being topics for discussion at planning meetings.
Succession, more than any other issue, can be the catalyst for the owners in a family business to reach a consensus. Addressing succession is compelling because the senior owners understand that the time is drawing near for them to let go of the firm’s reins, and yet they simultaneously want to reduce their risk of non-payment of the retirement benefits. The younger owners or family members are ready to take over the firm, but recognize that they lack important skills and experience needed to ensure a successful transition. Therefore, all parties involved are almost certainly more open to change than at any time in the past. But most important, given the looming transition to the next generation of leaders, all the owners are likely willing to give up some privileges and powers in exchange for things that are becoming more important in light of this changing environment.
Some of the many issues that are open for change are:
- Who is going to take over the business, and what skills do they need to develop?
- How can the firm’s decision-making process be established to ensure a viable and enduring chain of command?
- What processes are needed to ensure the consistency of operations between leadership groups?
- What systems should be adopted to reward and promote the behaviors the firm desires?
- How will everyone in the firm be held accountable for his or her actions and inactions?
- How do we leverage both our people with extraordinary marketing/business development capability, as well as those with a similar level of technical competence, to be of maximum benefit to the firm?
- What are the roles, responsibilities, and expectations of owners, managers, and staff?
- How can the firm’s clients be transitioned, what is the order of the transition, and when do we start the transition process?
- What and when should the firm communicate about the transition plan to employees, customers and other key stakeholders?
- What roles, responsibilities, and expectations as well as corresponding benefits and privileges have been identified for the retiring owners?
By addressing each of the preceding questions, you have traveled a long way down the road to developing your company’s succession plan. In drafting the plan, do not get caught up writing a novel when a series of outline notes will most likely do just as well.
In our work with family businesses in this area, the central issue is about putting processes in place so that they run their companies like a business! Succession is easy when your firm is built around principles such as:
- Building a solid infrastructure focused on developing people on every level,
- Holding everyone accountable (including or especially family members) to achieving the firm’s strategy,
- Compensating everyone for their current performance rather than through an entitlement process,
- Identifying the role people play so that they know exactly what is expected of them,
- Putting decision-making authority in place so that the CEO can hold everyone accountable to their personal goals and firm objectives.
The great news is that the steps a firm takes to formalize its leadership succession process are fundamental to making the family business better, faster and stronger. At Succession Institute LLC, we help firms navigate through this process.