Successful Succession: Increasing the Odds

By John A. Haas
Management Strategies Group

We’ve heard the statistics: 90% of US businesses are family-owned; 60% don’t make it to the second generation; 75% don’t make it to the third.  While there many possible reasons, succession planning is something families can control to increase the odds.

What Goes Wrong

Some common symptoms of poor succession planning are:

• Unwillingness to face the problem in time to plan
• Failure to identify future family roles
• Failure to assure future family executives have needed knowledge, skills and abilities
• Not enough experienced non-family executives in influential roles
• Failure of next generation to earn respect of non-family employees, customers, vendors, etc.
• Older generation unwilling or unable to step aside; second-guesses or overrules "junior."
• Different values between generations
• Mixing family with business matters to the detriment of both

Getting It Right

Unless the business is sold or disbanded, succession must eventually happen.  It can be well or poorly planned.  A useful first step might be for the founder/owner to write an “emergency management transition” (EMT) plan to offer guidance to surviving family members in the event (s)he is suddenly disabled or dies.  That jolt of reality should get the thought process flowing!

A successful transition plan should include at least the following:

• Create a board of advisors or directors to include a number of pros with credible outside experience and exposure in addition to family members. Succession planning should be part of their strategic agenda.
• Require that any family member planning to manage in the business have a relevant educational background and some years of outside experience.
• Only accept such family managers if there is a clear business need to fill a position for which he/she is objectively qualified.
• Require that family managers rotate around the company to gain sufficient exposure to all products/services, technology, processes, employees, customers, etc.
• Communicate the succession plan as appropriate to key stakeholders within and outside the company. Shape the culture toward embracing the succession plan.

Succession is always difficult, especially with a long-entrenched management and employee workforce.  Yet, succession and new energy are essential for a family business to survive and thrive.

Summer 2000 - Volume 10, Number 3