Family Business: Practical Leadership Succession Planning

Your interest in Leadership Succession planning indicates that you are starting a business and planning ahead smartly or, equally exciting, you have created a successful business and want to ensure its future.

If you seek philosophical discussion, theoretical conjecture, speculation, distracting escape from reality, or personal strokes, stop now - you have selected the wrong book.

If you want unvarnished, experience-based assistance, a focus on how to prevent or resolve leadership succession derailers and a straightforward path forward, you’ve made a good choice – read on.

Less than 15 percent of family businesses survive into and through the second generation. If you believe your business will continue to be successful, you are not alone. But remember that, from the time the leadership begins to include the second generation, there is an 85 percent probability of business failure.

“Family Business: Practical Leadership Succession Planning” is the first of two books about family business succession. Innovative approaches for practical and effective ownership succession are discussed in our forthcoming book, “Family Business: Practical Ownership Succession Planning”.

Often when lawyers, accountants, and financial advisors refer to succession planning, their focus is on ownership succession. Therefore, their advice centers primarily on protecting your estate from taxes and other threats, after you’re gone. Some advisors actually call succession “the final act”. These advisors often take for granted that a leadership succession will somehow take place.

Ownership succession planning is the second part of succession planning and is the process of creating a preferred path to transfer control of the business from you to someone else.

Ownership succession planning without prior practical and effective leadership succession planning places the cart before the horse. Without a clear, effective leadership succession plan in place, ownership succession may be just passing to the second generation (your children or others) a hollow shell that will implode in the near future.

Leadership succession planning is the process of identifying, evaluating, selecting, mentoring, and motivating your replacement.

For your business to continue successfully it must have at least the same level of future leadership capability and commitment that made it successful in the first place.

Where would your business be if you had not had both the capability and commitment to create and build it? Where will your business be if your strengths, your special talents, your commitment, and your leadership are not sufficiently replaced and continued?

The new leadership must be as good as or better than you have been at doing your job. It may be true that the new leadership will “inherit” a successful business - while you had the more difficult task of creating one. But the ongoing challenges to the business are ever-increasingly more ominous and complex than they were when you started the business. Therefore, your successor must be thoroughly qualified, prepared, and motivated for his or her new assignment.

If you already have or anticipate second-generation participation and if you were totally objective, how would you describe the state of your Family Business? Let’s keep it simple. Pick one of the following three options:

(1) A Family Business with a Future:

Currently employed or to be employed members of the second generation (including children, extended family members, employees and others) fully understand the Vision, Strategies and Priorities of the business. They are committed, productive participants who set an example for others and strive to grow, preserve and protect the business. They and the business live within or below their true earning potential. Founders, shareholders, leaders, and employees have confidence in the team and the future of the business.

(2) Dead Business Walking:

Employed members of the second generation (family or others) are occasionally productive participants, sometimes set an example but often watch things happen and are often paid more than they can earn elsewhere. Founders struggle with business growth, bottom line results, and consistent cash flow.

(3) Grim Reaper Bait:

Members of the second generation are employed by the business while they pursue other professional aspirations, often look to be led, often don’t know what’s happening and are paid above their true earning capability. The business struggles with more than occasional negative cash flow as it subsidizes the family’s growing needs.

Unfortunately, most family businesses are best described by option # 2 or 3.

If you picked option #1, lucky you. You are either in la la land and life is still good or you have succeeded against significant odds. In either case, you have a lot to gain from a well-planned and implemented practical leadership succession plan.

If you picked option #2, it’s not yet too late. You must make some important changes in culture and personnel to turn the ship around. And you have a great deal to gain from a well-planned and implemented, practical leadership succession plan.

If you picked option #3, try to find someone out there who will take this thing off your hands before its value turns negative – or consider shutting the business down before it consumes more of your resources. But, first, read on. Maybe some quick actions can still save your business.

As described herein, the leadership priority characteristics often observed during the second and third generations are primary causes of family business failures.

Causes of and suggested solutions for generational leadership priority issues are discussed in chapter 6, Leadership Succession Failures: Fifteen Key Causes and Solutions.

If you want your business to prosper now and into and through the second generation, you should implement a well-considered and well-executed leadership succession plan as soon as possible.

By wisely developing and objectively choosing your successor well before you plan to exit the business you give your business a much better chance to (1) continue to prosper through your generation, (2) support you in your current and future alternative adventures and (3) survive through the second generation.

Leadership Succession may appear to be an ominous challenge but it’s not as difficult, mysterious, or complicated as you may have been led to believe.

The stakes are high. But the work is not difficult. It takes focus, discipline, common sense, and an informed, practical leadership succession plan. Read on and take good notes.