Monday, June 20, 2011

Manage Family Business Succession To Reduce Its Sting

by Mike McGrann, Executive Director, The S. Dale High Center for Family Business

Choosing a successor can be hard
on siblings.
Did you know that family-owned businesses are responsible for 60 percent of total employment in the United States? Here’s a chilling statistic from the Mass Mutual Family Business Survey 2007: 

Fifty-five percent of CEO’s set to retire in five years have not yet chosen a successor.

If family businesses constitute the backbone of the
American economy, why are nearly half of their executives compromising future viability by failing to put a succession plan in place?

Succession is a tough nut.

Leadership succession is hard for everyone. According to a recent article in Newsweek, large publicly traded firms struggle with succession. It’s an inherently difficult process. Add to that process all the family dynamics that have given family businesses a negative connotation, especially in the U.S, per that same Newsweek article. Throw in a host of family business leaders who equate succession with death because they have nothing to transition to once they are “out” of the business because they failed to acknowledge their own departures, and it's no wonder succession is easier to avoid than tackle head on.

For the successor generation the succession process can be painful, too. It can feel as though the child chosen to succeed the outgoing leader has won the prize whereas all other children in contention have lost. Who wants to create that kind of conflict and tension within the family?

How to manage family business succession.

The good news is that succession can be managed with a good process that is neither magical nor difficult to understand. One of the things family businesses can do is empower a board that includes a few directors outside the family business to help manage the development of new talent and choose a successor. The final decision can be based on requirements that have identified the most qualified successor to lead the business (as opposed to perceived favoritism), which will minimize family pain.
If you are five years out from your retirement, there is still time to roll out a healthy succession plan. The longer you wait, however, the more you limit your ability to develop a talent pool of successors.

Mike McGrann
Mike’s Bottom Line: Succession doesn’t have to be all gloom and doom. It can be managed if executives can get their head around two things—plan for business leaders to transition up and not out; and follow a proven process of using a board to help manage succession.

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