Succession planning

Enlightened thinkers in succession planning recognize there is a relationship between strategic planning and successfully transferring a family business to the next generation.
Let me begin with a few quotes from industry pundits.
“Planning the transition and continuity of succession is the single most courageous act a leader can do.”
“Succession planning really confronts the founder with his/her own mortality. It requires getting with the kids and talking about when you will no longer be around. A lot of families don’t want to do that.”
“According to a survey conducted by the Mass Mutual Life Insurance Co., 74 percent of small business owners intending to pass on a family business to a relative don’t have a written succession plan.”
Owners can be divided into two distinct groups regarding succession planning: those who absolutely refuse to recognize the need for succession planning and those who are attuned to the need for planning.
Most business owners put off doing their plan simply because they refuse to contemplate their own mortality. They see succession planning as equivalent to planning their own wake and funeral. This perception generates a number of emotional responses, including denial, anger and depression, which can appear at different times in the planning process.
Owners also place a high value on control, which generates an emotional resistance to turning over that control to the next generation. In addition, some business owners have two problems regarding professional advice: they do not want to pay for the help they need or they get advice from a professional but then ignore it.
A well-conceived succession plan can actually spell freedom and a new type of control for the senior generation. The founder can now transition from a day-to-day management role to ensuring that the business is heading in the right direction.
To begin succession planning, the following steps must be taken:
1. Set a date for key family members and management to review the written draft.
2. Make the necessary revisions based on their feedback.
3. Include non-family members in the consultation process, e.g., an attorney, insurance agent, accountant and management consultant. This can be accomplished by forming a family advisory council.
4. The family may also elect to form a board of directors to guide them through the process of succession planning.
There are a number of important lessons that can be learned from companies that have implemented successful succession plans. Succession plans should be:
• Customized.
• Driven by top management.
• Focused on shared responsibility among the family members.
• Focused on future strategy and culture.
• Focused on objective multi-rater assessments (360 degree vs. 90 degree).
• Focused on development of a leadership cadre.
• Part of the overall multi-year strategic plan.
These lessons should be a guide to the development of a succession plan. The latest research indicates that it is critical that succession planning and strategic planning be linked. The succession plan should be incorporated into the strategic plan and follow a parallel timeline.
It is especially difficult for family companies, because of the difficulties associated with getting everyone in the family to believe and support the process. Planning has to become part of every day, not something that is done once a year.
It is important to realize that the family issues and the business issues cannot be totally separated. The basic needs and desires of the family are a very powerful driver in directing the future of the business. For example, the founder may be concerned that there will not be a continuous income flow to support his retirement from an active role in the business. It would be the role of the family advisory council to isolate these financial, legal and tax issues and develop effective strategies to deal with them. The business owner is often too close to a problem to deal with it objectively.
Once the owner has made a decision as to the timing of the succession, he or she needs to inform the entire organization, especially the key employees and managers. This step will reduce concern and confusion and have a positive impact on employee morale.
The succession planning team, which would be composed of the key family and management members, could then concentrate on a smooth transition of responsibilities from
one generation to another. Each member should have clearly defined roles that will support a smooth transition of leadership.
Many family-owned firms have moved from the entrepreneurial stage to the managerial stage and need to enter into the professional stage. In this stage, strategic planning and goal-setting begin to drive the organization. It is in this stage that the business can carry on without the founder and eventually without the siblings.
The benefits of combining the succession and strategic planning processes are many. They are: easier decision making, stimulated and challenged employees, and a business that continues to flourish from generation to generation.
Cary Silverstein, MBA, is the president and CEO of Fox Point-based Strategic Management Associates LLC. He can be reached at (414) 352-5140.
June 24, 2005, Small Business Times, Milwaukee, WI