Start Early

As discussed in the previous post, most psychologists specializing in the area recommend thinking about succession as a long-term process rather than as a defined event, or worse, an anointment. Some even recommend that the process begin years before the actual succession. Ironically, long-term thinking does occur, perhaps as a father watching his son’s leadership in a hockey game. However, the key is to make this private and informal process highly explicit and open.

 

Preliminary steps can be taken by the founder long before a final decision about succession is made. Family members in the running for the CEO seat can be progressively delegated to more administrative and executive tasks. In contrast,

I have seen many companies where the “kids don’t have access to the numbers” – in my opinion, a disaster in the waiting and reminiscent of how Victorian parents expected their virginal children to be sensual love makers on their honeymoon.

 

This gradual push to more administrative tasks should be accompanied by formal training, both inside and outside the company. I remember one father CEO who questioned why the son was doing an executive MBA when “he can learn the same thing with me, here.” If you’re a founder, be a believer in training, of all sorts and types. Finally, use the regular performance appraisals as times to review the desired CEO’s competences and then link any deficiencies to developmental remedies.

 

 

Money versus Power

Everyone agrees about the importance of the decision. Bentayou (1999) phrases it as: “deciding… who gets the cash, stock, leadership and power and who gets left out.”   Despite the importance of the decision, the actual mechanics of the decision-making are akin to the operation of a blackbox.   Sharma et al. (2000) write that “family firms pay the least attention to identifying the candidates and developing criteria for selecting a successor.” In fact, most selection processes in family companies are guided by emotions (Howorth et al., 2001).

 

One guiding principle is to acept that all heirs have equally shared rights to ownership. However, when it comes to management succession, there is only one criterion – competence. In other words, the most crucial aspect in terms of company management comes down to who can best run the company, as opposed to what is personally best for those involved (Drury, 2016).

 

Shedding light into the black box:

In my work with the founder, I help make the selection process more explicit by identifying and outlining the requisite qualities of a successor. I do so, much like a chef creating a buffet, by letting the founder select the attributes he or she thinks are most relevant.

 

 

For example, the work of Schepphorst and Moog (2014) cites requisite CEO skills in three global domains:

 

1) human capital including training, education, technical knowledge

 

2) social capital including knowledge of staff recruitment, motivation and   retention

 

3) personality traits and motivation

 

More specifically, Patel (2017) states that successful family candidates should reveal some of the following key qualities, including curiosity, sense of purpose, risk-taking etc.

 

In short, I provide some operationalized way of determining who should take over.

I try to help the founder avoid two potential mistakes: Selecting the candidate emotionally or without adequate contemplation.

 

 

Mechanism of gathering data:

Once the ideal qualities have been defined, the question becomes one of how to go about assessing those qualities in the potential candidate. Some combination of the following five methods should be considered:

 

1. Self assessment
2. Founder’s assessment
3. Outside consultant assessment
4. Internal stakeholder/board/accountant assessment
5. Objective psychometric assessment by a psychologist

 

In my experience, I don’t strive for purity by relying on just one mode of assessment. Rather, my approach is more comprehensive by using multiple modes and multiple assessors. The data can be used on its own to rank candidates, or as lauching pads for discussions about the candidate’s approach to business challenges.

 

 

Final Word:

I believe it is important to help the family business founders to realize that their kids invariably lack their experiences and maybe their drive. Often, succession falls to children who are at different life stages than that of their parent at the inception of the company. Frequently, the children who are being asked to take over have families of their own and perhaps a certain comfortable lifestyle that limits their time commitment and perhaps their need for additional financial success. Rarely have the kids ever faced the financial challenges associated with the early years of the family business.

 

I caution the founders not to be dissuaded by any of this. Few founders ever fully accept that their kids are really ready. Strong desires to maintain the family heritage, the drive to achieve, the joy and power of developing can be enough facilitate a successful transition.