Survival is the Goal -- Both the founder and the successor should have one major goal in common: perpetrating the business. Each has his own responsibilities in making sure the goal is reached, but each has to also work with the other and understand what's really needed. Many of the succession plans I see are feats of technical wizardry. They're put together in the erotic dreams of financial planners and tax lawyers. But, even with all their fetching technicalities, they often don't go to the real heart of the real needs of continuity. There is a lot more involved than saving taxes. The goal of everybody involved should be to transfer management and ownership in such a way as to prevent the all too common conflicts that can cripple or destroy a business. The survival of the business should be the major objective of everything that's done.
The yardstick for selection and employment for that reason must be as practical and objective as possible -- and the best one I know is the yardstick of competence. The business is too fragile and valuable to allow passing out management positions on the basis of blood alone. The same judgments I'm suggesting the founder place on his managers, he should place upon his potential successor. This demand for competence places a greater challenge on the successor, of course, but I have seen over and over again that it makes that management transition easier and less traumatic for all involved. This is why I'm so much in favor of the successor's cutting his management teeth working for somebody else. Under another's roof, the business owner's son or daughter is just another employee and everyone knows it. They sink or sail depending on their actions and their abilities. They also can learn management from professional managers, discovering there are other ways to do things than the way Dad does them.
Nepotism in its ideal form is the selection of blood kin for a good job of a pool of equally qualified candidates. The nepot under these circumstances isn't being given a gift. He's getting an opportunity he's earned by the sweat of his brow, while his accident of birth is merely a happy advantage.
The Outside Board -- A major reason why management succession in successful family-owned companies is such a problem is "loneliness." The business owner, his successors, his managers and his family tend to suffer from a very common problem: they inhabit a very small world. As far as matters of business go, there is little, if any, meaningful interaction with outsiders on matters important to the transition. The thinking and all activity tend to center on immediate concerns, sudden problems and petty disagreements. Value judgments, operating policies, and assumptions are seldom questioned, much less changed.
But with success comes the growing need for the founder to start examining everything he takes for granted. By the time he's coasting out of his most productive years, he should already have begun sharing problems with people whose opinion he accepts. He doesn't need anything formal in the beginning, maybe simply a meeting with people he knows and respects in a non-formal way. But the important thing is for the founder to get comfortable being interrogated. He should learn to feel comfortable preparing for a meeting.
Business owners generally don't like to meet and talk. They are doers and meetings which make them sit back and think, ask, and prepare, go against their basic grain. But as time goes by and business grows, such meetings will become more and more necessary. Any attempt the founder can make at sharing problems will help smooth the way for the more formal approach eventually needed for a successful transition of management.
The founder can learn to share his problems with his family and his managers. He can share them with his kids, with his advisors. Even those informal "meetings" will start bringing to light some difficult questions that will have to be examined. This is the beginning of a periodic, but increasingly regular audit of the important questions about business management and continuity.
The sooner the founder learns to share his problems, the sooner he will get used to the cold shock of being questioned by an outsider, and the sooner he will be ready to take the necessary step of creating and installing a legally constituted body charged with ensuring continuity and perpetuation of the business: a working board of outside directors.
The business owner's managers and his advisors -- his accountant, his banker, his attorney -- are technicians. He needs them for his tactical planning and for facing battles at hand. But directors are essentially strategists. Their subject is the total trust of the business and where it's going, the fundamental risk judgments are always best made by competent, experienced risk-takers, the kind of people who should be on the board of the successful family-owned business, not Mom, Uncle Charlie, Rasputin the attorney, and maybe a couple of the kids.
What the founder -- and the business -- needs is the tested knowledge and experience of someone who is in the position to be able to confirm or challenge the risk judgments of the owner. Paid advisors have knowledge, but rarely are they in the position to start challenging the owner's judgments openly. They work for him after all. Their livelihood depends on his funds, his good will, and his continued blessing. Besides, the nature of their expertise and experience doesn't usually include the trade-offs and decisions of risk-taking. They are analyzers, not doers.
This is no easy role. It's one thing to give an owner-manager advice on, say, cash flow management, and an entirely different thing to understand and help a man whose personal limits are often the limits he imposes on the company, and whose age increasingly becomes a factor in his decision making.
The risk-taking peer has been through all that. He understands. And he's not about to be intimidated by the owner-manager's flak. His help is absolutely necessary if the one-man show the founder has built is to be successfully perpetuated in the next generation. He can help answer the serious questions in a way acceptable to all involved: the multiple owners, managers and even people outside the company. Which of the available heirs should be successor? Is it fair to make such a choice? Is it equitable? Who will judge the qualities and abilities of the potential heir? Mother? Dad? The sequence of birth, accident of sex, pressure from a spouse? What if the heir doesn't want the job?
A board of risk-taking peers, assuming some longevity and continuity, can serve as a judging body, watching and evaluating the potential successor and succession plan. Even the choice of a competent successor presumes the transfer of ownership will occur over a reasonable time. But there's nobody less objective about the time remaining, in general, than the business owner himself. A working board of outside directors, because they can see through smoke screens, can force the owner-manager to give due consideration to that decision on his own. The successful perpetuation of a family-owned business requires the founder's acceptance of need for growth, his adaptation to the fact of change, and his preparation of his management team for the next generation. It requires, too, the judgment, understanding and objectivity of committed and compassionate overseers -- outside directors.
The formula for recasting the one-man show isn't all that complex. It requires dedication, confidence, and a willingness to be open to the ideas of others. It also requires as early a start as possible.