Succession is the biggest challenge family businesses face. Studies estimate that 70%-80% of all family enterprises don’t make it from one generation to the next. The subject of succession triggers emotional issues and family dynamics, which can cloud judgment and postpone decision making. When this happens, the results can be catastrophic… for both the business and the family.
The circumstances which work against a smooth transition are described below in The Seven Deadly Sins of Succession Planning. Which of them are you committing?
1. Failure to plan for succession
Without a succession plan, owners are operating in a world of wishful thinking. Things will work out… somehow. Here’s the problem: uncertainty over future leadership will eventually threaten business continuity and jeopardize relationships. It’s ironic, but the attempt to keep all options open limits choices down the road. If owners abruptly disengage, the transition to the next generation becomes unplanned and unmanaged, sending shock waves through the company.
2. Failure to objectify the selection process
Choosing a successor based on sex, birth order, seniority or loyalty is problematic. So is choosing a son or daughter who is a carbon copy of the owner. Businesses have life cycles. It may be hard for a successful owner to appreciate that different systems, processes and management skills may be required to sustain growth and profitability in the years to come. Successor selection criteria should be largely based on the kind of leadership the business will need to meet future strategic and operational challenges.
3. Failure to choose a successor
Family businesses are equal opportunity employers… often to a fault. When choosing one child over another is perceived as favoritism, owners can become paralyzed. The corrosive impact of sibling rivalry can also contribute to indecisiveness. Letting the next generation work it out is asking for trouble. Sharing presidential authority can lead to bickering, organizational confusion, and indecision.
4. Failure to prepare the successor candidate(s)
Family business owners are notoriously inattentive to executive development. Family credentials are usually all it takes to get into the business. Roles and responsibilities may be ill defined, and performance accountability limited. Successor development consists of making sure the candidate is exposed to everything and responsible for nothing. Finally, there is a belief that everything the successor needs to know can be learned inside the
company.
5. Failure to delegate
The succession process tests the owner’s confidence in his offspring from the moment they join the firm. Competency concerns are magnified by established family relationship patterns and the owner’s desire to maintain control. When this occurs, successors are deprived of the chance to learn by making mistakes. Ultimately, the successor’s training must include the opportunity to make decisions he or she would as president. This can be extremely threatening when the successor proposes taking the business in a new direction.
6. Failure to let go
Business owners are caught between conflicting passions: the desire to control the legacy and the desire to perpetuate the business beyond their tenure. This dilemma contributes to procrastination and even paralysis. Owners must come to grips with the prospect of retirement and the certainty of mortality. For some, no longer working is the same as no longer breathing.
Succession is jeopardized when owners fail to plan their retirement. The boss needs someplace to go and something compelling to do. With financial security at stake, it is a challenge to remain involved in the business without undermining the successor.
7. Failure to address ownership succession
When ownership succession is neglected, the “sins of the father” can be visited upon his descendants for generations. The desire to treat all children equally invites the development of family coalitions and dissension between insiders and outsiders. If the successor is to be more than the titular head of the business, the issue of voting control must be addressed.
To avoid the family dream becoming a family nightmare, begin succession planning now. Succession is a process, not an event.
