Preparing A Successor For The Family Business

In-family transition is encumbered with a number of potential pitfalls arising from the intertexture of family issues with business issues. Selecting and preparing a successor is not without its challenges.

Among the array of business, personal, tax and estate issues that need to be addressed as part of the transition process, the preparation of the successor should be paramount. On this person will devolve much of the responsibility for carrying the business forward successfully.

Arranging continuity of management through in-family succession is a long-term project requiring long-term planning that systematically allows for:

    initiation
    identification and selection of potential successors
    training, and
    building support

Initiation

Initiation refers to the period in a family member's life when they passively 'learn' the business from family conversations about business related matters. They'll hear comment on how well or badly it is going, about the employees, about other involved relatives. If the overall impression these conversations create in them is negative, it's unlikely they will be interested in working for the business in later life.

If the aim is to encourage an heir to eventually enter the business then building the right mental attitude should start early. Demonstrating enthusiasm for the idea while emphasizing the positive aspects of the business and its potential will encourage them to think of it as a career path worth taking.

Identification and selection of a successor

Likely successors can be identified through their involvement with the business. This can be provided by periods of part-time work or holiday jobs in various positions, giving candidates the chance to try it out and see if they are interested and for the older generation to assess their suitability as successor.

Of the entire succession process, selection can be the most difficult step, especially if the choice is among a number of children. The decision may be viewed by siblings as favoring one of them over the others, a perception that can be disastrous to family wellbeing and sibling harmony. Avoiding the issue and waiting for family members to figure it out among themselves once the owner leaves is a prescription for disaster.

The decision as to the successor requires serious consideration of what is at stake. The future of the business depends on the chosen person having real managerial capability. The owner must honestly analyze the strengths and weaknesses of all potential successors separating out issues of family loyalty and fairness from issues of business acumen and strategic management ability.

If the business has an outside Board of Directors, their input regarding the suitability of potential successors can be a valuable sounding board.

In a worst-case scenario the owner should consider uncoupling ownership from management and appointing an outsider as CEO while the family retains ownership.

Training

Many a founding member of a family business learnt their management skills on the job and they often assume their children can do likewise. This may be possible in some instances, but consider the rapidly shifting business environment (outsourcing, cheap imports, new technologies, complex labor laws, increasing pressures on business to act in a socially responsible manner): most businesses could benefit from a manager with some formal training in the industry and in management.

The senior generation must analyze not just whether there is a viable successor within the family but also what experience and training that person will need if they are to make a meaningful contribution to the business.

Likely successors should work in different areas of the company so that they fully understand how the business operates. They should be placed in useful, responsible positions with well-delineated outcomes so that they have an opportunity to learn and to demonstrate their aptitude. In the smaller business this approach can present challenges because any one person is usually responsible for a wide variety of tasks. Nevertheless, candidates for succession cannot be evaluated effectively if they are not given responsibility and authority for some particular tasks.

Some families require that they work for a number of years outside the company to remove the personal relationship factor from training and expose them to what it really means to operate in an objective worker/management relationship.

Building support for the successor

A family member newly appointed as manager is encumbered with all sorts of baggage an outsider isn't. Something is likely to be known already, and judgments made on the basis of this knowledge - about their personality, about how the rest of the family treats them, about their capabilities. This can lead employees to discount them as 'boss' material, making it difficult for the new manager to impose his or her footprint on the business. While it is hard to negate these influences completely, it is worth making an attempt to consolidate a view of the successor as management material and worthy of respect in that capacity.

In business planning meetings among the family and in formal meetings with employees, the successor should be accorded due regard. In the day-to-day business operations, the successor should be treated much as an outside hire would be to build their position among employees. Position descriptions and honest performance reviews are just as valid for family members as for other employees.

Introducing them into the outside nexus of business relationships, such as customers, bankers and business associates, will identify them as the successor and give everyone time to get to know each other and develop respectful relations.

In-family business transition can work where the succession process is planned out to avoid the potential pitfalls. The keys to a selecting the most appropriate family member to take over the business are long-term planning by the owner, open discussion between the stakeholders and decision-making on the basis of what is best for the business, not what is best for any particular family member or to avoid family argument.