Passing on family business a daunting and challenging task

May 23, 2012
| By Chad Perry |
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Succession planning is a critical and sensitive topic for any organization. This is especially true when discussing family businesses. It is often thought of as something that evolves naturally; however, the most successful transitions are the result of a deliberate and thorough succession plan. When a family-owned business mismanages succession planning, outcome is far-reaching. It not only affects the business but also has consequences for the deeply rooted family relationships.

So how can a family business better prepare for succession of its key leaders? Here are four steps to help any family-owned business more effectively handle some of the challenges of succession planning.

1. Start early: Too often succession planning is handled only when change is imminent. Starting early not only allows for better planning, but it allows for changes at a more realistic and achievable pace (e.g., skill building, transition client relationships, leadership development, etc.).

In addition to aiding with a smoother leadership transition, starting early also allows for accommodation of unexpected changes in the plan. When facing unexpected life events, adding the uncertainty of daily business responsibilities and future succession plans does not make things easier for anyone. If all involved parties have a clear understanding of the succession plan and the steps associated with it, then the plan can still be followed. Goals can be re-established to make sure the objectives are achieved — even if some changes are necessary in implementation.

2. Establish interest: Most parents primarily focus on providing a better life for their children. Family business leaders often treat their business as they would their own child. The senior family members want to leave a better, stronger and more successful business than when they started it. But what if there are not any family members who want to take over the business? What if a family member wants and expects to lead the company but other family members and leaders do not feel they are qualified?

Although these are difficult questions to ask, they are questions that need to be talked about and considered. Understanding the level of interest or lack of interest from family members is a critical step in succession planning.

Consider this scenario: Your mother is incredibly excited to give you a gift. She beams as she tells you about all of the time and effort (maybe even money) that went into it. She can’t wait for you to open it. She is literally overflowing with joy and excitement. You open it. You utterly hate it.

How easy is it to tell your mother?

How much harder does it become if that scenario is the family business?

There are two things that can help to better gauge a family member’s interest: Have them work outside the family business and/or have them go through a career planning/vocational assessment with an objective third party.

It is not unusual for family-owned businesses to establish a specific number of years that a family member must work outside the organization before they may join it. This not only diversifies their experience, but better helps them find their own career path — which may or may not be with the family business.

For some people working outside may simply delay the difficult decisions regarding the family business. The best option for understanding a family member’s true interest in the family business is through a career planning/vocational assessment with an objective third party.

The third party (i.e., Plante & Moran) could assess the individual’s interests, cognitive abilities and personality profile. With this information, a frank and honest discussion can take place about career goals, potential fields of interest and whether or not joining the family business will bring real satisfaction to their life.

3. Assess your candidates: “Nobody knows you like family.” This little idiom may be true and it may not, but it can certainly lead to ineffective succession planning.

When a new employee is hired, interviewers can make lots of mistakes. Many of these same mistakes can happen when a family member simply trusts their intuition.

When interviewing candidates, there is an error called “early decision.” With this error, potential job fit is decided by gut instincts (i.e., firmness of handshake, eye contact, etc.). Another interviewing error is called “similar to me.” The interviewer likes what they see, hear, etc., because it is similar to themselves. The last common interviewing error that can easily be applied is the halo effect. The tendency is to favor one particular characteristic of the potential employee and subsequently judge the other aspects about that person positively.

It is especially easy to commit these errors with family members. Reaching out to a third-party assessor allows for a very realistic assessment of a family member. Even if a family member has proven to be successful to this point in their career, can they excel in more senior roles?

4. Develop your candidates: Perhaps the assessment results suggest the candidate is not ready to become CEO today. It can, though, provide insight into specific areas for development that can better prepare a candidate for the role of CEO. This could take the form of formal training, internal mentoring, executive coaching, and/or a wide variety of other developmental opportunities. But for this step to be most successful, the succession planning must start early.

Succession planning is a daunting task for any organization. It can be especially challenging for family-owned businesses because there is the added stress of affecting family dynamics or the next Thanksgiving dinner. By starting early, establishing interest, assessing your candidates and developing your candidates, the daunting nature of succession can become a less formidable task. It even can become an exciting opportunity for the organization. The family can have a better sense of where they are now and what needs to take place to move individuals and the business forward.

Ellie Frey is the director of the Family Business Alliance (www.fbagr.org).

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