Chapter 5

Succession

Family and nonfamily firms are, on the surface, indistinguishable in many respects. Both seek to maximize profits, both seek an efficient management structure, and both seek a strategy that is coherent and explicit. Where they differ, and do so significantly, is how the family and its members are involved in the firm, how family dynamics affect management issues, and how the firm responds to these influences.

No doubt the family dynamics of a chief executive officer (CEO) or president in a nonfamily business affect how the business is run, but the impact is rarely observable on a daily basis except in egregious instances (e.g., a CEO is publicly outed for extramarital relations, resulting in his being terminated by the board and/or divorced by his spouse; a CEO, in trying to support his spouse’s extravagances, is charged with theft of company funds). Family businesses differ in that the effects of family issues and family dynamics are continually in view and visibly shadow the fortunes of the business.

Arguably the most dramatic and daunting of family business decisions, and the one on which the future of the family business rests, is succession planning: Who will assume the mantle of the president? This issue commands the attention of all family members as well as the firm’s employees. The succession issue in nonfamily businesses may arouse the interest of the public, employees, its board, and its bank, and no doubt depresses the spouse of the manager not selected while elating the spouse of the chosen, but the family dynamics of the CEO hardly play a role in the selection process. The family business does not share this luxury.

The position assumed here is neutral with respect to whether businesses originally intended to be family oriented should or should not remain in the family and undergo a succession process. There are many contextual circumstances that weigh on both sides and need to be considered. There is no inherent reason for a firm to become a family business. As underlined earlier, the decision of whether the business should become a family business is in the hands of the owner. Whether it becomes one is another story.

Our focus thus far has been on the dynamics of what can go wrong in family businesses and what may be required to remedy many of these situations. We have seen how the role of father, the needs and concerns of offspring, and the feelings of spouses are some of the major determinants of whether the business becomes a viable family business.

However, what has not, until now, been the primary focus is, how can planning for succession be improved? Are there ways to avoid the problems that pain many family businesses? What could be done differently to avoid the kind of conflict that destroys family relations? Responding to these questions is the focus of this chapter.

From the Beginning

I have maintained that one of the motives for sons and daughters to enter a family business is to resolve long-standing and preexisting family issues. Since the family business plays such a prominent role in the family, the business can be the site for these issues to be resolved. However, there has to be a welcome mat laid out, an aura around the business that is attractive, an invisible sign that says, in essence, this is the place where issues get resolved and laid to rest.

Creating a business can be extremely hard work—tiring, frustrating, and debilitating but also challenging, creative, rewarding, and even fun. Which of these attitudes the founder primarily puts forth can, in very unpredictable ways, shape the attitude of family members toward the business and influence whether offspring will want to join the business. But by itself the founder’s attitude toward the business, whether seen as a drudge or an interesting challenge, is not sufficient. Thus, for example, in one very successful and growing family business, just the fact that the founder spent so much time at the business and away from the family on weekends, holidays, and when his daughter performed in school plays discouraged her from even thinking of leaving her current employment to take over the reins of the firm when succession was brought up. The father in this family had been very enthusiastic about and challenged by the business. The son in another business entered the family firm not because he felt an affinity for it, but in order to get closer to his father—if this is where father spends all his time and energy, then this is the arena in which to further develop or redevelop a relationship. A founder of another firm never felt obliged to devote all his energy to the firm and, in fact, rarely spoke about it at home during the early years. When retirement was broached and a successor was needed, none of his offspring jumped at the chance to succeed him. Announcing early on that his business would be a family business and that he wanted his children to be part of it did not have the desired effect in another family—both sons opted for other occupations when they matured.

The lesson to be drawn from these very brief examples is that predicting the impression a founder’s attitude toward his firm will have on sons and daughters is, by itself, uncertain at best. We have to look a bit afield to see other influences. One such influence, and perhaps the most significant, is the attitude of the founder, in conjunction with the founder’s spouse, toward the business—toward the hours he may have to be away from home tending to its management, toward the sacrifices she may have to make, how they talk about it, how they deal with frequent out-of-town absences, how business dinners and other inconveniences are handled. This may be the best determinant of whether the founder’s desire to establish a family business becomes a reality. Unless the spouse is complicit in attitude, talk, and behavior in defining the firm as a family business, the firm may never become a reality.

Early on in the life of the enterprise, and when their children are still young, couples should talk about the future of the firm and their hopes for it, even though it is still struggling and may not survive, even though other issues are more pressing and weighty, and even though their marriage may be on shaky ground. This advice may seem strange, especially the mention of an unstable marriage. Even were the marriage to dissolve but the business survive, the children of divorce still have marital talk about the business running through their heads, influencing their feelings toward it. With both parents in agreement about the meaning of the firm for their family, the odds of it becoming a family business are increased.

The Founder’s Value System

The value typology described earlier is intended to be neutral with respect to “good” or “bad.” Each has its positive and negative features, its pitfalls and its opportunities. The founder should be clear about these features and, given his value choice, should adjust his sights so as to minimize the downsides and maximize the upside. This entails being clear with himself regarding his choice but also being explicit with his family and offspring as to his choice so that there is no misunderstanding of his intent and goals.

If the business is an investment, then his children should know that—though there may be temporary employment in the business, there is no future there for them. If the business is a business, then family members should be aware that their employment will depend on their ability and performance; it is not simply a gift. Running the business for status means offspring must be aware of the importance of their public persona. The children of heritage and inheritance firms should be kept well informed about the intentions of the founder, estate planning, and management and business issues. Summer employment for offspring in heritages and inheritance businesses may help to ensure the firms become family businesses.

Preparation

Since one very important factor in the success of any family business transition is the successor’s ability, a training program for the candidate is essential. What if there are two or more candidates on the threshold, each vying to occupy their father’s chair? Should each undergo extensive training, particularly when it appears obvious only one has the successor gene? For several reasons the answer is yes. It is rarely crystal clear who will develop into a leader several years down the road. The results of training can be surprising, with the early laggard exceeding his or her sibling.

Perhaps a more significant rationale is that, if all the siblings-in-waiting will be working in the business, having a trained and knowledgeable cadre of family members can only enhance the fortunes of the business. The process of training will sensitize the siblings to the inner workings of the business. The siblings who have been trained stand a better chance of understanding the business’s demands and what each can bring to the table to meet these demands. Then when it comes time to select a successor, the choice becomes, if not immediately obvious or acceptable to all, at least reasonable.

The following vignette is unfortunately prototypical for a great many family businesses.

Working Elsewhere First

A frequently mentioned criterion for prospective successors is that he or she should have experience working for another firm—whether in a related industry or not usually does not matter. The reasons offered include the opportunity for personal growth (“It will increase his or her self-esteem”), the squelching of future conflict (“He or she will see that it is just as tough elsewhere,” “He or she will appreciate our business all the more,” “He or she will be less confrontational/aggressive/a know-it-all”), and the acquisition of knowledge that could be put to good use in the business (“He or she will be able to teach us a few things”).

Training elsewhere before entering the family business has never been proven as an inoculation against family conflict, a means of personal growth, or a source of new business knowledge.

If the training of youthful impulses is intended as a means of reducing family conflict, “it ain’t necessarily so,” as the song suggests. The army may do just as well. An assumption is that the sole source of family conflict resides in the young man or woman who is being sent out to see what the real world is like. Another assumption that becomes a hope or goal is that he or she will be more conforming when they return to the business.

As we have seen, behavior in a family context is much more complex than these assumptions allow. All too often the young person’s upsetting behavior is symptomatic of a wider family or business problem that is being denied. Trying to understand his or her problematic behavior as indicative of broader issues, as opposed to carting it away, might be of more help to the family. Preexisting problems in families will only await the return of the heir apparent.

If increased self-esteem is sought, the end product may be a son or daughter who refuses to return to the family business precisely because of their newly found self-esteem, or one who returns, but with a mind of his or her own that does not fit the business culture, much less the family.

Enhanced business knowledge sometimes does result, but usually only when the heir apparent has worked up to or has started at the top management levels of another firm. If they have worked their way up on the outside, their position is often too attractive and rewarding to leave; if they do leave, it is frequently because of the owner’s advanced age and readiness to retire. When they do enter the family business, their business knowledge and style all too often jar current practice, sending shock waves throughout the firm and creating resentment in their wake.

The farm system too often does not work. It can, provided that all players and coaches are clear about their respective goals, timetables, and mutual agreements. All too often, however, goals, motives, and intentions are so thickly glazed over that the outcome is anything but desirable. The most successful use of the farm system has been the situation whereby the son or daughter is deliberately tasked with returning in x number of years with new ideas. The mutual planning process is detailed and intensive, with accompanying research. It is interesting to note that those family firms that engage in this type of planning are also operated in this type of deliberate manner. This approach, however, is rarely utilized, since oversight of the process is difficult and its potential contribution may not be what the firm will need in the future.

Some other conditions exist where training elsewhere is heaven-sent. For example, offspring who are working in a responsible position for another firm can often step in as president upon their parent’s death or disability, thereby rescuing the ship from foundering and the family from drowning. These circumstances are chance events, however, and not designed.

An Approach

There does not seem to be a best method of preparing offspring to enter the business. Working in the business during summer vacation, going directly into the business from university, entering the business with an MBA, not having a degree at all—each of these have been credentials of both successful and unsuccessful successors in both highly technical as well as nontechnical businesses. What does appear to differentiate offspring who aspire to become successors is a willingness to learn and a curiosity about what makes the firm tick. They ask questions of the founder before they enter the business. They wonder why events unfold the way they do. They like to hear stories about the firm and are interested in the outcomes of these stories. In particular, they wonder about the decisions the founder makes—his motivation, his rationale and strategy, what he hopes to accomplish, what the chances are of a good result and why. Curiosity is not something that can be instilled in a son or daughter but is part and parcel of the character of the offspring.

What can tweak curiosity is the willingness and openness of the founder to initiate and share stories about the business and its people, to talk about his motivations for specific decisions, to explain his strategy in certain situations—in brief, to teach his offspring what the business is about and to do so proactively.

Entering and Working in the Business

Three management decisions early in their career at the firm can enhance the experience of the son or daughter and intensify their commitment to the firm. These decisions convey to the offspring that their employment is taken seriously, that their future is being planned and not left to chance, and that the firm’s future is tied to how they perform.

Involvement of Management

Including management in designing the succession training program for the offspring is an essential element in its success. Not only does it promote the identification of management with the offspring and their learning, it also reassures management that the firm’s longevity is a primary goal of the founder. Management can also be a very important source of information about the developmental needs of potential successors; they may have an even more accurate perception of the offspring’s ability than the parent does.

Perhaps just as important is the offspring’s increasing awareness of the strengths and weaknesses of management. Too often successors, when they first occupy the president’s chair, are tempted to clean house, the house their parent built. This includes top management personnel whose abilities and experience may not be fully appreciated by the new successor. Working together under the aegis of a training program can minimize the impulse to houseclean to which some successors are prone.

Learning the Business

It seems so obvious to say that potential successors should learn what makes the firm function before they take over from their parent. Unfortunately, what tends to happen is that their apparent talent is utilized and they are pigeonholed. For example, the successor may have talent in finance, sales, or operations. This then becomes the basis for determining in which office they will sit. Focusing on that particular talent suggests to all that that is what he or she is to be utilized for and that their learning about the business should be oriented around this. The result is that this talent becomes the lens through which the successor views the business. What gets overlooked is that, regardless of their particular talent, being fully aware of how the pieces of the business fit together is crucial for a newly appointed president. Focusing on one aspect of the business (i.e., on what the person is familiar with and good at) can limit his or her eventual contribution.

Developing a program designed to help the potential successor learn the business should be a collaboration between management and founder. What will emerge is not only a well-thought-out development program but also an appreciation on the part of management of how they themselves see the business, what blind spots they have about the firm, and what areas they might improve.

It may well be that the outcome of such a training program is a rotation through all the departments of the business, a favorite learning tool that family businesses adopt for their sons and daughters. But in cases where management has thoughtfully plotted a learning program, it may be markedly different. One size may not fit all.

The Founder’s Shadow

A portion of the family business training program should be devoted to the offspring spending time with the founder and shadowing him, particularly when the offspring is midway through the training program. This might include attending board meetings, visiting the firm’s banker along with father, accompanying father when he sees important customers, and attending management meetings. The important aspect of being a shadow is connecting what the son or daughter sees at these meetings with what father says is happening, as well as father’s reasoning and understanding of the behavior of himself and others.

The benefits of shadowing are many. The offspring gets a ringside seat to what a president does and thinks. Values, ideas, and understanding are communicated and absorbed. This also offers the opportunity for the sibling to consider what in his father’s behavior he or she will choose not to emulate or perpetuate. In addition, the presence of the successor at these meetings provides the other parties an opportunity to meet the future president and to size him or her up. A third benefit is the reassurance others derive that the business will continue on into the future in a planned and deliberate manner.

Another element of a shadow program that might occur later in the training entails the offspring being given special challenging assignments and then being debriefed about his approach, thinking process, and goals, and how they all tie together. The range of possible assignments depends on the size of the company.¹ The basic criterion of a challenging assignment is that it must have a direct and meaningful impact on the firm, such as opening a new sales territory, turning around a failing division, researching new technology that is needed to compete successfully in the marketplace, investigating a business to purchase, or selling off a division.

The important contribution these activities make to the successor’s learning occurs in the debriefing process, where she has to present her case, her rationale, her plan of action, her backup plan if the original plan fails, and the like. The experience of thinking out loud (i.e., defending one’s approach) broadens the range of variables and parameters beyond what she may be used to, making her judgment that much more effective.

The Selection Criteria

In those family businesses where there is only one sibling interested in working for the business or in being selected, the choice seems obvious. However, what if that offspring is not up to the task? Given several candidates from among family members, ability and experience would seem likely criteria. But what if the choice of the most able candidate precipitates a family conflict? Unfortunately a compromise solution is the sibling that either is least objectionable or is the family peacemaker. Any other solution might divide the family. However, is the choice of the least objectionable candidate or the family peacemaker best for the business? It is doubtful!

Birth order is another frequently used criterion, with the firstborn frequently seen as the heir apparent. However, this criterion overlooks such issues as the heir’s ability, his or her possession of the type of skills needed by the business at that point in time, the support management is willing to provide this candidate, and the ability of the father and eldest child to work together during the transition phase.

Another consideration concerns the feelings of later-born siblings whose birth order prevents them from being chosen. This can become another source of family business difficulties if the choice is a later-born child whose tenure in the family business is less than that of the eldest—how is the latter’s “sweat equity” to be compensated?

In the face of these (and other) difficulties, one response is for the owner not to choose anyone as a successor. As one father remarked when asked why he had not designated any of his sons as president, “I want all of my kids at my funeral when I die.” The implication was clear—selecting any one son would have created such hard feelings that a rift in the family fabric would be the result. As mentioned earlier, another response is to go with the option that presents the least amount of conflict (e.g., copresidency, choosing mother’s favorite, creating ersatz presidencies, among others).

What if it is not clear who possesses the right combination of qualities, traits, and experiences to qualify for the role of successor? How might one proceed in this case?

Very often decisions that are manifestly inappropriate are justified by family members under the banner of “family comes first.”

The very first step in succession planning is for the family members to deal with and resolve the rallying cry that family should come first. If, in fact, family does come first, then the welfare of the family business, which is meant to be either an inheritance or a heritage, precedes all else. If the family business is to remain a family business, then the leadership has to be capable and the choice of successor requires that. It is not, then, a question of two opposing entities, the business or the family, but rather a question of how the business can serve the best interests of the family.

Interestingly enough, this position can have effects far wider than simply a successful business that lasts into the future. As the various stories presented in this text indicate, the impact of this stance can positively enhance the development and growth of family members. In contrast, not considering the welfare of the business as a primary goal of the family can seriously interfere with the psychological development of offspring,

Evaluation

Possibly the most effective method of evaluating talent is to see it in action. How have the prospective successors fared in the assignments they have been given and the positions they have occupied in the business? This assumes several things: that the family members have worked in the family business for a sufficient length of time to have progressed from one position to another, that their activities in each position were measured against goals, that their assignments were increasingly demanding, that they were encouraged to seek out educational opportunities (e.g., MBA program, weekend and weeklong courses, and the like), and that their activities were evaluated by senior managers and not by the owner alone.

Another method designed to introduce some degree of impartiality in a situation potentially fraught with conflict is to utilize outside expertise to facilitate objective management assessments and tests. This offers not only the advantage of impartial talent assessment but also a basis for suggesting training, coaching, or further educational programs that might be required or needed. An additional exercise is having the prospects each develop a strategic plan for the family business to be judged by impartial outside professionals (e.g., business owners, consultants).

Another often overlooked source of information about candidates is that provided by senior managers. Hesitation in utilizing this body of information centers around two themes: the concern that managers will simply confirm in their evaluation what they perceive to be the owner’s preference rather than risk his resentment and the concern that managers might rate their preferences higher or lower than the facts would support. Specifically, managers might be more positive about a prospect that has sided with them and more negative about one who has been at odds with them over business issues.

A methodology that is widely utilized in industry to offset these objections to management evaluations is the adoption of what is called a 360-degree feedback process. In the family business situation this would entail obtaining confidential and anonymous feedback from the business owner and managers using a standard instrument, and direct reports of the prospects and from peers (e.g., one’s siblings if there are several prospects, or managers who are at their level). The feedback from the owner and from peers (if there were two or fewer) would not be confidential, but that from managers and direct reports would be. The process is referred to as “360 degree” because feedback is being offered from all parties, including superiors, peers, and direct reports. Many times companies obtain information from customers and providers as well. Not only does information come from different sources that can be compared, but this might well be the first time that the parent has sat down long enough to think through how he really perceives the strengths and weaknesses of the offspring.

These different approaches to evaluation can easily be used in tandem. What is extremely important is the debriefing that should occur between parent and offspring around the body of information these methods provide. Even if the findings from any one of these methods are negative and the offspring becomes belligerent, laying out impartially obtained assessments could prove a decisive step in the personal and professional development of the offspring. Equally important is that this approach introduces “facts” into family discussions that challenge accepted myths and misunderstandings.

The Transition Process

The transition period in which authority and responsibility are transferred to the successor presents a variety of challenges:

Siblings

The designation of a son or daughter as successor generates a host of different feelings in family members (the siblings not selected, spouses, and family members not in the business). Siblings now have to become accustomed to working for someone with whom they may have been in contention for the throne. In the case where the choice of successor was both clear and accepted, chances are that any negative feelings have already been worked through. This is not always the case, however, particularly if there was some residual hope that the outcome was not a fait accompli. Were the outcome not predetermined, the loser in the succession derby could easily harbor negative feelings and become a cross that the successor will have to bear.

Succession planning involves not only selection of the heir but also the assignment of roles, responsibilities, and authority to the other family members in the business and the specification of their working relationships. Who is responsible for what? Who really is in charge and has the final authority? What does “final authority” really entail? How are disagreements about direction to be handled?

Whatever the emotional scenario that results among siblings, the most effective way of addressing it is before succession takes place, not after. It is the responsibility of the owner to discuss with each offspring how he perceives her as a leader and employee, what her strengths and weaknesses are, and why she will or will not be chosen, using the data gathered through assessments and feedback processes. If there are angry or hurt feelings, they should be directed toward the owner and dealt with by him, not the successor. If the successor has to address the negative feelings of his or her siblings, then the owner has failed in his responsibility. As mentioned earlier, the beneficial effects of this kind of debriefing can be profound.

Spouses may have to accept the fact that their loved ones are not selected. In the absence of a debriefing by the owner, spouses can exacerbate any negative feelings that might be present, causing havoc in the business and family. In the vignette of the deposed brother, this is what happened. The sibling’s spouse became angry with the parents and her brothers-in-law and refused to participate in any further family gatherings.

Another segment of the family needs to be considered in succession planning—the siblings not in the business. Quite often these family members have received benefits from the business (e.g., free automobile ownership, gas fill-ups, “salaries,” handouts). The successor might well consider these perks as useless expenses that need to be discontinued. If in fact this is the direction in which the successor wants to go, it becomes the responsibility of the owner himself to let the family know that this is the new roadmap of the future.

The Management Team

A serious omission in succession planning is not integrating managers into the succession planning process and not utilizing input and feedback from them about the candidates for succession. The transition period is difficult not only for parents and successor but also for the managers, who have been loyal to the owner and now must shift allegiance. Soliciting their input about the selection process and the transition phase contributes to the success of any plan developed for the continuation of the business. They generally, but not always, are able to evaluate offspring more impartially than parents, and in that sense can make a significant contribution.

Just as a presidential successor has to be chosen, so too does management have to prepare for their own succession. Unless the new president chooses to keep doing the same old thing, his or her promotion will entail changes in management structure and hierarchy. He or she is different than the parent, and this very difference entails a difference in how operations proceed, how information flows, how decisions are made, and so on. The transition from the previous culture to the one being born requires both the involvement and feedback of management, as well as a reevaluation of their functioning. To make the leap requires a renegotiation of roles and responsibilities, promises and expectations, goals and action plans. The new president may want additional reports from the production manager, who will want to know why this is necessary. The head of sales may need to become more of a manager and marketing expert rather than doing what he had done best before, which was making crucial and substantial sales when others could not.

An earlier section dealt with the need to involve the entire management team in the strategic goal setting required by the business. An important reason is, in addition to the ones offered earlier, to facilitate the transition and undergird its success.

Many times, managers have been with a business since the founder opened the doors. Both they and their accumulated knowledge and experience may retire with the founder, leaving the heir with a depleted staff. Planning for the succession of managers can help prevent this. In fact, management succession should be as carefully planned and strategized as succession of the presidency.

The owner may have valued certain managers that the heir finds inadequate for his or her purposes and goals. Preparing for management transition in conjunction with current successor transition cannot be overlooked. The success of a strategic plan that the newly appointed successor would like to introduce depends on a supportive and contributing management team. Part of succession planning is the evolution of the owner’s vision of the business’s future to that of the heir. The passage from one to the other is made easier with management’s involvement and with the management team on board.

Adapting to the New

The transition period in which both the old and new guards are present can prove to be a bit disconcerting and unnerving for both managers and employees. To whom do you address your questions? Whose directives do you follow or give priority to? Whose style do you consider when presenting information (e.g., brief or elaborate), proposing projects (e.g., completely worked out or just the outline), making decisions (e.g., checking first or taking full responsibility), or disciplining employees (e.g., easygoing or no-nonsense approach)?

It is in these circumstances where the ambivalence of the founder regarding transition can cause the most trouble. The ambivalence may be as overt as the founder castigating employees for doing what the successor says without clearing it with the founder first, or in a more covert form such as his being depressed at the loss of his authority. After all, he has been the business for many years and the business has been him. He has been making the decisions all this time; employees have never questioned to whom they should go for final approval. It would be a big surprise if in fact the owner did not experience these feelings.

As we have seen, the responsibility for emotional closure lies with the owner, and the responsibility for shepherding the transition through to completion rests with the owner as well. As the authority who has been sitting on the throne all these years, it is his opinion on what is accepted employee behavior and approval of employee actions that counts. To the extent he can, in his actions, declare that the heir’s style and mode is the new order of things, to that extent is the transition made more smooth for managers and employees.

The Role of the Owner After Transition

The sale of a nonfamily business and its transfer to new owners usually results in a severing of the previous owner’s relations to the business. He or she might be retained as a consultant for a defined period of time, but the owner’s participation in the future running of the company ends with the change in ownership. In a family business, turning over a business to his heirs does not necessarily mean an end to the owner’s involvement in the business. His influence will remain in spirit, if not in fact. His picture on the office wall attests to that. Given that he will remain as a felt presence for a long time after succession, that presence has to be defined as part of the succession process.

Retirement and succession are not necessarily synonymous but are nevertheless frequently confused. Succession does not by definition entail retirement. Business succession does have to occur for the welfare of the business—its continuation as a family inheritance and heritage depends on it. However, retirement of the owner need not be a foregone conclusion. The end of the owner’s reign as president is best understood as occurring on a continuum from a ceding of all management and business-related responsibilities and authority on one end (namely, retirement) through taking on some responsibilities in the middle, to a defined role in the business on the other end.

Some owners, no doubt few in number, would welcome relinquishing all business responsibility upon succession. But many owners, who cannot conceive of what they will do without the business to run, view any reduction of responsibility as anathema. Underlying the aforementioned continuum are two issues that stand out as important considerations in the succession process. One was already mentioned—the presence of the former CEO (in spirit or fact). The other deals with the accumulated experience and knowledge of the owner.

If full retirement is the decision of the owner, planning for his departure is important. Given that his knowledge for the most part retires as well, a major consideration is whether the successor has obtained whatever knowledge is needed for the success of the firm. In many instances the owner’s departure has been anticipated and the successor has been absorbing the intricacies of the business for some time. Also to be considered is whether the succession process has been fully acknowledged and accepted by management and staff.

More frequent, however, is the situation where the owner remains a figure on the business scene. The crucial element in making his presence meaningful is defining his future role and responsibilities and in making his presence useful for the business. If the transition is to be successful, this definition of roles is a necessity. The most frequent stumbling blocks in defining a role appear in several guises—business practices, inherited problems, and paying homage.

The father may disagree with how the business is being run by his successor—not enough sales are being generated, the wrong kind of markets are being pursued, employees are getting away with murder. The list is endless. If the father is to remain active in some capacity after succession and particularly if he retains an equity position, what is needed during transition is an agreement about the criteria by which the successor is to be evaluated. What reports will yield information by which to judge his or her functioning? Is it to be gross or net sales, profit, or return on investment? Agreement on these goals will go a long way in eliminating conflicts and disagreements between successor and founder about strictly business issues.

Similarly, the father who remains active in the business has to be judged according to agreed-on criteria. As difficult as it might be for a son to judge his father’s performance in his new role, it is very important. If the father is not retired, if he is an active and viable person, then he has a contribution to make to the company. This contribution can and should be monitored. Thus, for example, if one of the father’s responsibilities after succession is scouting for possible acquisitions, then how well he performs this function should be evaluated. Performance criteria should be discussed during the transition period.

The father and his successor may disagree about “inherited problems.” It could be father’s partner who is now the successor’s unwanted partner, or nonproductive managers that father has been planning to do “something” about for a long time and never got around to, or machinery that should have been updated long ago. To avoid disagreements after the fact, these “inheritances” have to be resolved prior to and during the succession process. If not, they become a source of friction after succession.

The third area of disagreement that frequently appears after succession is what can be termed the paying of homage. Because of the owner’s significant contribution to the growth of the company, managers all too often pay homage to him and judgment is deferred to him. He feels entitled to contradict what a manager or line supervisor has been told to do. Because of his deservedly revered status, he is in a position to strew his path with garlands and praise or, alternatively, to throw barbs and criticisms. The problem arises precisely because people, especially his successor, do revere him, want his praise, and want to avoid his criticism. Where homage is still being sought by the owner and paid by the staff, it can be seen as a denial of his ambivalence about succession—if he is still treated as the president and acts as such, he really does not have to acknowledge his heir’s new position or experience the normal ambivalence that letting go the reins creates.

As embarrassing as it may be, the one fact the successor has to own up to with his father is that he does want his praise; if he is not getting it, he needs to know why, and if he is only getting criticism despite a stellar performance, he needs to know why as well. This type of confrontation can be very healing.

The specific role the father assumes can vary in breadth and depth. It should match his forte, be it in sales, finance, manufacturing, and so on. For example, if finance is his strong suit, then negotiating business deals for the company may be his primary role. Whatever role is defined for him, a set of goals, timetables, and action steps needs to be established that support the successor’s strategy going forward.

In many other situations the transition is delayed because of a failure to clarify roles and authority while operating under the guise of a completed succession process.

The Founder’s Spouse

The founder’s spouse plays a leading role in the transition phase. She has to witness her spouse’s ambivalence about succession, his begrudging acceptance of the heir’s way of doing things, his disagreement with decisions that are being made, and in some instances his depression over his diminished status in the business. In her own way she can make it easier or harder for her offspring during this transition phase by how she responds to her spouse’s behavior. If she had disapproved of the selection of successor, no doubt her feelings could easily be manifest in some version of “I told you so,” thereby promoting doubt in her spouse’s mind about the transition and the heir apparent. If she is supportive, this attitude can ease the transition process for him.

To appreciate the importance of a founder’s sensitivity to his spouse’s feelings about succession, consider the following.

Informing Stakeholders

Another factor in easing the transition is communicating to stakeholders (beyond those mentioned thus far) who have an interest in the success of the family business—in particular, the firm’s bank, suppliers, customers, minority nonfamily investors, and board of directors or advisors. Membership in some of these groups may overlap. The timing and approach to communicating with each group may differ and the tone of the message may vary by group. However, it is important that the message be sent. Each of these groups has an investment in the continuity of the family business and its continuing growth.

No doubt the board of directors or advisors will be informed about succession early in the process, and indeed, may have been recommending that it occur. If in fact awareness of succession occurs late in the process, then something is drastically wrong with the functioning of the board. Succession, and the foundation it builds for the firm’s continuation, should be a primary agenda item throughout the board’s tenure. Significant aspects of that agenda should be an analysis of each candidate’s strengths and weaknesses, the basis on which a choice is made, the training program for the successor, the progress the successor is making, and how responsibility and authority are being gradually transferred from the owner to the selected offspring.

If nonfamily minority shareholders are not on the board, at some point they need to be provided with the same information, otherwise there could be trouble. Similarly the firm’s bank has to be informed early about the changes that succession entails. Not keeping them fully apprised could jeopardize the company’s source of financing.

More difficult to assess is when, or even if, to inform suppliers and customers about changes. In a situation where the current president is removed from office because of either incompetency or misbehavior (e.g., sexual harassment or theft) and replaced by a relative or nonfamily appointee, it is essential to get the message out as soon as possible before the news becomes public knowledge. This allows the family business to frame the message in the most productive and least disruptive way. The family business succession process that is our focus is similar in one major respect—major suppliers and important customers may have had a long-standing relationship with the previous president and might be anxious about what change means in their relationship with the firm. More prudent than issuing an announcement is having major suppliers and customers become part of the succession process. The candidates for the president’s seat might be introduced to them and interact with them on a regular basis. When succession eventually occurs, the successor will be a known entity and the transition from founder to successor will be experienced as almost a nonevent.

Performance of the Successor After the Transition

It is evident that many businesses that have become family businesses (i.e., where succession into the next generation is in place) do not succeed. A variety of reasons can be offered to account for these failures. One quite interesting study² suggested that three patterns tend to characterize these failures, reflective of a successor’s inappropriate coordination of his current business style with the firm’s history: “a hidebound attachment to the past, wholesale rejection of it, or an incongruous blending of past and present.”³ These styles were uncovered by the researchers’ analysis of the sample firms’ strategies, organization, and governance.

The successors who exhibit a firm attachment to the past continue the founder’s strategy with respect to “goals, business scope, product lines or markets”⁴ in the face of changing market conditions and considerations. The managers who have worked for the founder and former board members remain, with new hires being chosen on the basis of their resemblance to the current management team (e.g., being conservative rather than creative freethinkers).

Another group of successors takes the opposite stance. They reject the past entirely and install new systems, strategies, personnel, and processes. Significant change appears to be the order of the day, with poor results. For example, acquisitions and divestments are made, but more out of a desire to do things differently than because of a clear strategy that explores new opportunities in depth.

A third pattern, termed “wavering succession,” is a combination of these two and is characterized by indecision on the part of the successor, changing from one initiative to another, and bringing in new divisions and new people that are poorly integrated with the current organization structure, if not in direct conflict with it. The successor who exhibits this style cannot seem to stick to a strategy, wavering between what has worked in the past and new ideas that appeal to him.

Although not mentioned by the authors, these failure patterns can be attributed to a lack of planning on the part of the founder and heir during the succession process. One criterion for the selection of a successor would be his ability to articulate how he would run the business, what changes he would make and why, what he would retain and why, and what personnel he would let go and hire. Failure is a fair prediction if these issues are not discussed between the founder and successor.

The conservative pattern of running the business as it has always been run may well have been birthed by an implicit acceptance by the founder that the successor maintain the status quo. Of course, accepting and implementing such a conservative adherence to the past could reflect uncertainty and a lack of confidence on the part of the successor, a need to continue pleasing father, among other motives.

A wholesale and uncritical rejection of the past is not a very wise policy in general. If, during the transition period, the father did not detect that his son or daughter was prepared to reorganize the entire business and radically change its direction and tone without questioning the wisdom of such a policy, then the planning process was deficient. It is not a matter of being against change on the part of the father, but rather a matter of having the successor describe the how, why, and when of the change and rationalize it to some degree of mutual acceptance.

Wavering between the old and the new is a personality issue that in many instances would disqualify an individual as successor. Being indecisive is not a trait that appears overnight. Wavering between aggressively insisting on one method or process and then being equally staunch in promoting another or opposing method or process is a characteristic trait of individuals who are uncertain of their stance. The failure of the father in not recognizing, acknowledging, and dealing with this is the underlying problem. He put the family business in jeopardy.

The message once again is the importance of planning in the succession and transition process.