The Challenges of Succession Planning

Succession Planning. That seems to be the #1 issue people talk about when it comes to family businesses. And just about every consulting, accounting, legal and financial group claims to do it and do it well.

Talk to family business owners over 55 and they’ll tell you that “succession” is probably their highest concern and, at the same time, their most confusing concern.

Those who are on the succeeding end – their adult children – have a variety of concerns, depending on how their parents are handling their discussions around succession.

Consider some of the issues they raise:

  • Son: “I don’t think Dad is ever going to retire. What kind of a future does this leave for me?”
  • Dad: “It’s impossible for me to just let go of the company I’ve spent a lifetime building. And besides that, the next generation is not ready.”
  • Daughter: “I don’t think I’m ever going to own any stock in the family business. Why should I continue to participate in it?”
  • Siblings: “We have a succession plan; it was decided by my dad and his brother years ago. My brother and sister and our cousins don’t like it, but we don’t make the rules.”
  • Sibling: “I don’t know how I’m ever going to get along with my brothers and sisters in the business.”

Think about these five quotes for just a moment. The first quote goes to Timing on when the trigger should be pulled for the senior generation to exit the business. Just because they can continue to work in the business doesn’t mean they should continue to work in the business.

The second quote deals with Identity and Training. Thu owner’s identity is too connected to what he does. He doesn’t have a transcendent purpose in life outside of work. Moreover, he hasn’t spent time (usually years) preparing his children to take over his business. Leadership and management are two different things. Just because they know how to work in the business doesn’t mean they know how to lead a company.

What we hear in the third quote is Hopelessness. More than likely, a succession plan isn’t in place, or if it is, it’s not been communicated well and it probably isn’t being followed.

The four quote deals with feelings of not being Respected when stakeholders are not included in the development of the succession plan. When stakeholders are not included in the development of the succession plan, the plan itself is bound to be wrong. But that’s the minor point – the frustration and negativity that grows in the soil of being diminished is the major concern.

The last quote illustrates the complexity that the 2nd generation siblings must navigate. Power, control, identity, roles, purpose, employment, retirement and a host of other issues that have strong potential to create conflict and divisions if they are not managed properly. Resolving these issues doesn’t come naturally. Complexity is the issue to resolve in the second generation and they rarely can do this without outside assistance.

Timing, identity, training, hope, respect, complexity and a host of other issues are wrapped up in a succession plan. Add to that estate plans, retirement objects and plans, answering “What’s Next?” for the senior generation and the different shareholder, Board of Director, contingency and other planning efforts in which the family must engage leads one to swiftly discern why most consultants say it takes at least five years and intentional effort to successfully achieve a succession of a business from the first generation to the second.

The quotes were taken from the book Family Business Succession: The Final Test of Greatness. Aronoff, McClure, Ward; Palgrave MacMillian