Giving your successor a warm reception
3/23/2004

When it comes to family business succession, familial tension and employees’ fear of change can disrupt operations and even jeopardize the company’s survival. Sibling rivalry and resentment may lead to attempts to sabotage the successor while co-owners may feel the next-in-line is incapable of leading the business. Nonfamily employees uncertain about their futures with their employer or threatened by their new CEO may cease to cooperate or leave.

Meanwhile, an heir apparent may be unrealistic about his or her business capabilities and relationships with stakeholders and take over too soon. Or a future boss may feel alienated and alone, unable to express anxieties for fear of injuring his or her credibility.

To ensure your family business succeeds into the next generation, prepare your company for this transition and mentor your replacement. Doing so will increase the likelihood that shareholders, employees and key customers will warmly welcome the new boss when the time comes.

Checking conflict at the door
Misinformation, rumors, threats about quitting or refusals to support the new boss are often inevitable in a succession. Not to mention, family and strong emotional ties can intensify issues related to the transition.

To help keep potential sources of conflict in check, identify stakeholders who may have strong concerns about your next company leader or the process and work out problems with them early on. What better way to get them on your side than showing you value their input and making them part of the solution?

Also, involve family shareholders who do not work in the company. For instance, invite them to serve on a committee to help guide and evaluate the successor.

Preparing your company
To assimilate your successor, help the stakeholders in your company %97 such as shareholders, managers, board members and key customers %97 warm up to the idea. You can do so by:

Giving early notice. Announcing your successor as soon as possible allows you much-needed time to handle family members’ and employees’ concerns about your choice and address problems as they arise. Be sure to deliver the news at least a few years in advance.

Making the process inclusive. Involving key family shareholders and managers in planning will help you secure the necessary buy-in for your replacement and ready your company for the transition.

Documenting your succession plan. Outline the distinct phases of the succession plan for your board members, co-owners and staff. Remember to address the various roles key employees and departments will undertake as well as voice your expectations.

Communicating openly and frequently. Regularly inform stakeholders via meetings and report updates about your successor’s progress. You can more easily gain support for your choice and transition plan if they are kept updated.
Applying a systematic approach. To be successful, implement your transition process in phases, generally over several years.

Showing your successor the way
To ensure your next-in-line is an effective leader, begin guiding him or her in business fundamentals well in advance of the transfer date. Over a period of years, your replacement should complete a well-rounded leadership development and mentoring program that includes:

o Formal education,

o Participation in industry and civic groups,

o On-the-job training,

o Experience working outside your family business,

o Leadership seminars and self-study,

o Short- and long-range goal setting,

o Continuous performance measurement and candid feedback, and

o Recognition of your heir apparent’s progress and successes.

Although this program requires the future boss to observe how you and others in your business or industry manage responsibilities, preparation should be hands on. This way your successor can apply and advance his or her skills with the benefit of a real-world business setting as well as begin building vital relationships with workers and customers.

It’s important your replacement struggle alongside other workers to overcome challenges and assume accountability for mistakes. After all, it makes sense to test your successor’s abilities and have him or her learn from mishaps on a smaller scale before being in a position where the entire business is at risk.

Many heirs apparent benefit from a mentor %97 either a nonfamily manager or an outside professional, such as a family business consultant or former family business owner. Providing such training can be too difficult or time consuming for a CEO. Family biases, differing work ethics and emotional attachments to their companies can also prevent owners from being objective or clear about their expectations. (For more on work ethics, please see “How to work out work-ethic differences” in this issue.) And, replacements may be more receptive to instruction and feedback from impartial advisors.

Toasting a smooth transition
During the succession process, there are many issues that can stymie the process, including familial tension and employees’ fear of change. Given the variety of complex family, management and financial issues you will encounter during this transition, outside professional assistance can make the transfer to the next generation as smooth as possible.

Use your family business board to build support
Your company’s board of directors can help you assimilate your successor to other key family business members. Board members’ varied perspectives can provide a more objective and collaborative approach to analyzing succession problems and developing fresh solutions. They can further assist by:

o Mediating family and organizational disputes,

o Giving feedback on your heir apparent’s progress, and

o Offering reassurance to business stakeholders.

So you may require your next-in-line to attend meetings or hold a temporary seat. Doing so also will help your successor become acquainted with individuals he or she will have to work closely with in the future.

(The previous article was general in nature, and we recommend any reader consult with their tax advisor as to the specific application of this information to their particular facts and circumstances. This article is based authorities which are subject to change, and accordingly, should not be relied upon. Any tax advice included in this article was not intended or written to be used, and it cannot be used by the taxpayer, for the purpose of avoiding any penalties that may be imposed on the taxpayer by any governmental taxing authority or agency)

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