Succession in Family Firms: Opportunities and Challenges
In the United States, 92% of all firms are family firms. In the next five years, it is estimated that 47% will change their top leadership. At this point, 45% have not chosen a successor and lack a succession plan, while 65% do not have a strategic plan. As the transition of ownership is evolving, it is interesting to consider that 35% are considering co-CEOs, 34% are considering a woman as the next CEO, and 20% do not have an estate plan, thereby 'gifting'? Uncle Sam with 55% of company value.
It may be safe to voice some concerns. What would happen if today's leader were hit by a car? Could the next layer of leadership carve the road to success in the family business?
Let's begin with a working definition of succession:
Succession - The act or process of one person taking the place of another in the enjoyment of or liability for his (her) rights or duties or both. (Webster). Our definition of Succession is a process of transferring leadership from one generation to the next after focused grooming and leadership development.. Note that Success is the root word of succession. What creates success? What evokes failure?
What are some of the roadblocks to succession? The roadblocks from both generations usually cluster around beliefs, perceptions, assumptions, and values.
For the founder that may include assumptions like:
They'll never be able to handle this.
They're not ready.
I have to see them prove themselves first.
They know nothing.
No customer will treat them seriously.
I could lose everything.
I'm too young to retire.
They're too young for this responsibility.
I'll deal with this next year.
For the next generation, the founder's holding on seems like an impenetrable wall to her success. The entrepreneurial fever of the twenties and thirties is often thwarted as transitions keep being put into the unforeseeable future. The successors begin to wonder, 'Is this what I want. Will this ever be mine to lead?'?
Next generation assumptions begin to ferment and might include assumptions like:
He'll never let go.
He doesn't trust me.
He won't teach me what I need to know.
I know everything.
I could make this a dynasty.
I could be better off on my own.
I can't ask him to make a plan because he'll be insulted.
I'll deal with this next year.
To every change, there is resistance. For the founder, the resistance often percolates around issues of control, identity, and purpose. 'What will I do with my life if I am not leading this company? It has been like a child. The transition to new leadership is compounded by:
- The founder often owns the idea, the charisma, and the culture.
- The founder owns the power and knowledge.
- Transfer of knowledge decreases perceived power.
- Succession is the ultimate delegation.
- Trust must be achieved, but often few opportunities are offered.
- Letting go means finding a new identity and a new pursuit.
- What's next is uncertain.
How can you help the family owned business not become a fatality of the often quoted statistics that only one-third makes it to the second generation and ten percent make it to the third generation?
Facts and numbers make very little impact. The key to successful successions is working through the seven tough psychological stages which include:
Stage 1 Breaking through assumptions, perceptions, beliefs, psychological barriers of succession
Stage 2 Creating Dialogue - Managing the psychological tasks of succession
Stage 3 Strategic Planning - Creating the future
Stage 4 Aligning Strategic Planning with succession planning
Stage 5 Tactical - Training, coaching, mentoring, estate panning
Stage 6 Succession Transition
Stage 7 Managing Change
It is important to remember as you develop a succession plan that it is not just the top echelon of leaders on whom we focus. Succession planning and leadership development go hand and hand in the journey of sustaining the legacy of the family business, as do strategic planning and succession planning. You have to know where you want to go to choose who will lead, and then you have to teach them how to succeed at leadership and the founder to succeed at developing a new vision of his purpose beyond the business.