This is the last of three blogs written for MarchFifteen by our Strategic Partner, Pierre Gauthier, President of Gauthier-Murtada and Partners. Pierre has a wealth of experience working with Family Businesses and is used as a trusted advisor by many organizations in this domain. We appreciate his insights here at MarchFifteen. We also know businesses and industries outside of Family and Independently-Held Businesses can benefit from his perspectives regarding business transfer and transition.
The Emotional Aspects of Family-Owned Business Succession: Choosing Successors and Managing the Transition – PART THREE
By: Pierre Gauthier
As mentioned in my previous blog if there is one thing that successful family owned companies agree on when choosing successors – they will choose the right person for the right job. In other words successors are chosen because they have the adequate skill set and not because they happen to be the founder’s son or daughter. Unfortunately, I have seen many companies do just the opposite; because they are family members they are put in key positions regardless of their skill set. It can be very difficult for a father or a mother to let go of their emotional attachment to their children and say to them “son, daughter you don’t have what it takes to lead this company, therefore I recommend that you find a job elsewhere…” It is difficult because their children have started working for the family business when they were young, and parents sometimes feel indebted because of their children’s devotion to the family business. Some parents feel that they can hire family members because they can be easily controlled and therefore minimize the importance of competency to actually do the job.
Children also expect to be successors because they were told at a very young age that someday the company will be theirs and this was repeated several times at different stages of their lives. Unfortunately they weren’t told that there is a difference between “working” for the family owned business and “owning” the family business. So when the time comes to sell the company they are sometimes surprised that what the parents meant was something very different. I have seen situations were the children were in their late forties and the father or mother were still controlling shareholders and had no intent of letting go of the financial control of the company. This can lead to serious and devastating conflicts that can damage the company and ruin healthy family ties.
What successful family owned companies do is consider family members the same way they would consider non-family members – they apply for the job and must demonstrate the needed skills and attributes to do the job they are being considered for at the time of hire. They do one more thing, they actually recommend that potential successors work elsewhere before they can contribute to the family business, so they can “prove” that they can succeed without family nurturing or support.
Often, organizational psychologists are brought in to properly assess the successor’s capacity to do the job. An objective assessment can bring rationality in the process of choosing successors and contribute to a perception of fairness and objectivity.
That being said, it is sometimes hard to predict a successor’s future potential. I have had to assess potential successor’s that were barely 20 years old and family members wanted to know if their son was “Presidential” material! Without life experiences and work related experience it can be very difficult to precisely predict if a 20 year old would become a very successful President or General Manager. I remember a situation where the family members were predicting that their 19 year old son was to become the next President. After the assessment was conducted it was very clear that the son’s wealth creation abilities were more comparable to that of an Assistant First Level Manager. Telling that to the parents requires tact and diplomacy because they react as parents and as such potentially deny the assessment findings.
Once successors (more than one family member can be considered) are identified it is important to initiate what I call “the transition period”. In order to successfully initiate the transition phase the existing owners need to call transition meetings where the following points should be discussed on a regular basis:
- Strategic state of the business and financial condition of the business
- Clarifying new roles and responsibilities
- How important decisions are going to be made
- What roles are the “previous owners” are going to adopt
- What fundamental values and ways of conducting business will still remain relevant in the future
- How long will the transition period go on before successors are truly given powers and decision-making authority?
- How will we groom successors to be effective in their new roles?
And, a final note on grooming successors –
Family-owned businesses that report a positive transition have taken the time to properly groom their successors. On average it can take 5 to 7 years to successfully transition a company’s new owners. These companies hired outside help and often used a seasoned Executive to act as the Master Trainer to groom and mentor successors. For each successor there was a specific development plan that was executable and learning was on-the-job in style and format. Some development plans took three years to finalize and formal sit-downs were often organized on a bi-monthly basis to ensure integration of learning and to give constructive feedback.
A successful succession and business transfer will work if the previous owners are clear as to the type of transfer they want to accomplish. New job descriptions are designed to facilitate the transfer process. Successors are objectively chosen and a rigorous grooming process ensures their transition. As far as the previous owners are concerned, most of them still remain quite active in the family business even after formalizing the transfer process and actively participate in helping the business to grow and be successful but in a different capacity. The transition period is probably the most challenging phase of the transfer process because both previous owners and successors share the power and the decisions to run the company. Formal status meetings are therefore organized to iron out potential disagreements before they can lead to deadlock situations, and communication and understanding are key components of those meetings to ensure a smooth transition.
In conclusion, choosing successors for a business and developing them, particularly in a family business is complicated, and does not happen overnight. It takes planning, thought and mindfulness about choosing the best candidate for the job, or roles in question, which will allow the organization to move forward successfully.