MAKE IT A TOP PRIORITY.
A Formal Succession Plan Goes Hand-in-hand with Successful Retirement.
You’d taken out a loan, perhaps put a mortgage on your house, and everything depended on those first few sales. There was so much to do and most of it landed on you until there were enough profits to add employees. Every step of the way, the family was involved, especially when your teenage children were looking for part-time work. With pride, you’ve watched as the business grew.
Despite all the unknowns, your dreams came true—your business was successful. But now, there are new unknown factors on the horizon. You are ready to start a new chapter in your life, but what is going to happen once you retire?
Can you retire?
The questions keep you awake at night. Should you sell the business? Is your daughter or son able to take on more responsibilities? And what do the others, family members and those employed who are not family members, assume will happen?
You are not alone!
Over 3/4s of small businessowners (76 per cent) plan to exit their businesses within the next decade. Most (75 per cent) want to retire; 22 per cent are doing so because they feel burned out and 21 per cent want to at least step back from their responsibilities as owners. Whatever the reasons, here’s the more alarming fact: Only 1 in 10 of those businessowners have a formal business succession plan in place.
If you are one such owner, keep reading.
Succession Planning Equals Survival for Your Business.
There’s good reason why many businesses avoid the “succession talk.” They anticipate difficult conversations and decisions, even conflict. Some working in the company may want to take it in a different direction, while others hope it might be sold.
Likely, there are assumptions about who might step into a leadership role and whether that person should be a family member or an outsider.
Transitions around retirement are challenging for any corporation, and even more for a family-owned business. Family-owned businesses are a balancing act between the family and the business, always aiming to keep both parts healthy and thriving while preserving harmony.
Those goals are challenged when the founder/owner retires or during unexpected circumstances such as health issues or death. Decisions around tax, asset distribution, leadership, and overall management get mixed up in the emotions and dynamics of the family. Disagreements and misunderstandings can literally tear a family and the business apart.
If you are serious about the survival of your business, the legacy you’ve created, and family harmony, the only answer is a strong succession plan—one with the elements needed to take the issue of “transferring power” out of the realm of personal emotion and placed squarely in the executive and business realm.
Succession Planning is a Process, not a One-Time Event
First, there needs to be a shift in perspective. Most believe the task at hand is to select the next President. Yes, choosing and preparing the leader at the top is part of the plan, but putting a plan together and implementing that plan is a process, not a one-time event. Most experts recommend at least a 3-to-5-year timeframe or longer. That is true for family and non-family-owned companies alike. You are not just deciding or confirming who takes over; you are building a pipeline of properly prepared leaders who want to move the company forward.
Marissa Freed, who stepped into the role of CEO of her father’s Winnipeg-based apparel manufacturer Freed & Freed, learned the importance of formal succession planning the hard way.
No one prepared her for the job, but when she expressed willingness to step up as the incoming CEO, her father agreed without hesitation.
That decision was a shock to her siblings, who pushed back and demanded a voice. Employees who’d served under her father left because they didn’t want to take orders from her.
“We started to resemble the show Succession,” Marissa recalls. Ever since, Marissa has become a firm believer in succession plans with a robust implementation framework. “You can write a succession plan,” she says, “but the actual implementation of it can take years.”² She’s already put a plan in place for her retirement, based on open communication, building harmony, and ensuring everyone understands the business.
Best Practices Start with Transparency and Communication
Although the statistics of family-business survival rates across generations can be discouraging, many successful family businesses in Canada have survived, grown, and evolved over three or more generations. Inspired by what can take a business past the dreaded “3-year” mark, experts in succession planning have developed best practices for putting together a succession plan and ongoing talent engine framework that enables outgoing leaders to celebrate retirement and the incoming leaders to thrive.
In a corporation, succession planning starts with gaining insight and opinions from all stakeholders.
The process:
- Defines the organization’s vision, goals, and culture, and
- Looks at roles and responsibilities.
The same applies to the family business. The process is not the same as talking around the dinner table. The recommendations include one or a series of structured multigeneration family meetings where everyone is included in an open forum to share their opinions, ideas, and expectations. A respected family member trained in facilitation or an independent consultant should lead the process to provide objectivity and keep the conversations focused. All meetings should be planned appropriately with agendas, specific discussion points, and an agreed code of behaviour.
The first task is to identify the values and goals shared by those in the business so there’s a sense of common ownership. The initial meeting also provides a forum for family members to talk about their roles and how they believe they fit (or not) into the business. Some might not be suited for the business world—or even want to be part of it. They may need time to accept that reality. Others may finally get the chance to state alternative career aspirations. No decisions are being made at this point, but all members need to have a voice and be shown respect by being heard.
In general, family meetings should be part of the overall business operating structure to encourage communication, build trust, and generate family cohesion. If those have yet to be part of the structure, the succession-planning process is a necessary place to start.
Right Roles, Right Fit
Once goals are set for where the business needs to go, those leading the succession-planning process now ask—what skills are we looking for in our leaders and managers?
Specifically . . .
- What kind of expertise is needed today that is different from a generation ago?
- What about the future; what’s needed long term?
- Who is suitable to transition to perhaps newer roles in the future?
- Who needs training and development (perhaps everyone)?
- Who might not make the cut and needs coaching to help manage the changes?
The above questions can’t be answered by opinions or assumptions. The process requires a formal assessment of potential internal successors by a credible and objective outside third party.
Many well-known family businesses, from the Rogers, Murdochs, and Irvings, provide examples of what happens when assumptions are made about who will be given what role. In many instances, an owner’s plans for transition don’t match their child’s career aspirations. Or worse, the oldest sibling or a long-term dedicated leader who is not a family member assumes the honour will fall to them even though neither is the right fit for the role.
A rigorous, competency-based performance-management process is the best way to identify high-potential candidates within the organization. A formal, objective assessment should provide a baseline understanding of capabilities, developmental gaps, and growth potential . . . long before a decision needs to be made.
Expanding the process wider than the top leader creates a “talent engine” as part of the succession-planning process. You’ll have a successor in place, with support to ensure success, as well as a pathway for emerging leaders in the company who now have a way to move forward, either through training or a different career path.
If internal candidates do not meet the set criteria, then a reliable and fair selection process for locating external, qualified candidates may be necessary. When that is the case, at least the family is assured the questions were adequately addressed and resolved.
Training, Education, Leadership Development
When the succession process begins, there may be a need for some broader education on topics like diversification, selling a business, wealth-management opportunities, family investment strategies and options, etc. Presented as part of the above family meetings, they build inclusion and educate members on the risks and opportunities arising from the decisions that need to be made.
Training and education to address specific skills and needs, however, need to be part of an ongoing talent-support program. They include leadership-development skills and opportunities for mentoring, networking, and working on special assignments and projects. For instance, it’s often suggested that those who have grown up in a family business will benefit from work experience outside the family organization for a few years.
Coaching is an essential part of the succession-planning process. Leaders who are assuming new roles need to be set up for success, especially if there is internal conflict concerning their new position. Those who may not want to remain active in the business also benefit from coaching, to help determine their next career steps.
Final Thought: Don’t Wing It!
When you first set up your business, you faced a daunting task regarding family and work. Similarly, succession planning is one of the most complex and emotional issues that family businesses will face. Ensure your succession is based on a long-term strategic plan with a strong “north star” guiding business decisions.
Additionally, leadership development can’t begin the day someone new to the role accepts a promotion or steps up as leader. Those inheriting the business need to have a voice in where the business is headed to be prepared and supported by both the business and the family. Those considerations are what build success and harmony. As you step into that new chapter in your life, you wouldn’t want it any other way!
RACHELLE LEE is President of Einblau & Associates, a 38-year Western Canadian company specializing in leadership development, succession strategy, team-building, and strengths-based leadership-competency assessments
This article contribution was written for the BC Notary Association’s Scrivener magazine and first appeared online here: https://www.bcnotaryassociation.ca/resources/scrivener/?id=89