Succession

What is succession planning?

The basic principle of succession within a family business is preparation and training of the potential successor(s). Potential successors can be family business members, usually next-generation family members, or non-family members.

Who's responsible for succession?

Typically, the CEO has the primary responsibility for succession. However, the younger generation members who are potential successors also have the responsibility to be flexible, to apply themselves to learning the business and getting experience in as many areas of the business as possible.

How do you learn if the next generation wants to succeed another family member?

There are many stories of "assuming" that the next generation intended to step in when, in fact, they were not. The conversation needs to occur early, perhaps when they are in school or are working summers. Recognize that the answer could range from "certainly" to "I don't know." Be prepared for the uncertainty and be ready to propose a plan of action which removes the pressure of such a decision.

What are the critical questions for potential successors?

All potential successors should ask themselves two questions: 1) Do I want to run the business at some time in the future? 2) What must I do to prepare myself?

Can a CEO get any help in this important role?

Yes. If there is a board, the CEO should seek the board's advice. If there is a management team, the CEO should also seek their advice. If there has been a policy of setting goals in the company and evaluating employee performance — including family employees — against those goals, the CEO's decision should be easier.

How can a potential successor cooperate?

A potential successor should seize every opportunity to improve his or her knowledge of the business and role as a manager. Many family businesses have used outside coaches to work with potential successors, giving them an objective observer who can evaluate their strengths and weaknesses and provide guidance in overcoming the weaknesses. Coaches are used extensively in non-family businesses as well.

What if the next generation is not ready to take the reins and the CEO/president is ready to retire?

It may be time to consider a trusted member of the management team who understands the situation and who recognizes that one of his or her duties is to lead the project to "ready" the next family leader. If there is no one in the organization who could meet the criteria, go outside and communicate clearly what the expected outcome is and what will happen in the organization when he or she is ready.

What about non-family member successors?

In some cases no one in the next generation is interested in working in the business. In other cases, the simple fact is that there may be no one in the family old enough, experienced enough or capable to take over. In these cases it is necessary for the owner to assess this situation and identify non-family-member employees who might have potential. In cases where the next generation is not yet ready, an outsider might be brought in on a contract basis to serve in the interim. In other cases, an outsider would need to be brought in to begin the transition away from family management.

Does that mean the company will no longer be a family business?

No. Many companies are family owned, but managed by a non-family staff. The family retains ownership, provides oversight for management, and assures that the family objectives and values are maintained.