Succession Planning, Part 3:
Company vision, family vision
By
Max, the sleepless entrepreneur we
introduced in a previous article, is feeling a lot better these days. He's
taken his family business through the process of strategic planning for
succession. He can rest easy, knowing that the company he built from scratch
will still be in good hands when he's no longer in charge.
The succession planning process
assumes that the family will continue to own and operate the business. The
process then makes clear just how that will happen, by determining the vision
and goals of both the business and the family.
When these are consistent, as for
Max's company, the transfer of ownership and management can be smooth sailing.
But what happens when the business is headed one direction and the family is
headed in another?
In our first article on succession
planning (i.e. strategic planning for family businesses), we talked about the
tensions and fears related to succession. In the second, we defined our proven
method for guiding the planning process. In this third article, we will discuss
the conflicts that can arise when the strategic planning vision and goals of
the business are inconsistent with those of the family.
Where are we going?
How will we get there?
The
overall process governing strategic planning technique is a process of envisioning the future. Vision implies direction. A paradigm shift, an
evolutionary event, or just the passage of time can cause business owners to
ask at any given moment, "Where is my business going? How will it get
there? What kind of organizational structural adjustments are required to help
accomplish that?
Next,
business leaders must ask, What capabilities are required
in the family to lead this company? The goal of succession planning is to
ensure that company management has these capabilities.
Meanwhile,
the family is going through the same kind of envisioning process, asking the
same questions about its own direction. Just because this is a family business
does not necessarily mean that the next generation of family members will share
the founders' vision. Like the business, the family must create its own vision
and establish objectives for itself in a strategic planning process. Family
members must ask, "Where are we going? How will we get there?”
In
our last article we pointed out that family business owners at this stage of
the game have just three alternative courses of action:
1) They can pass the business on to
the next generation as a gift
2) They can sell the business to the
next generation or to outsiders, or
3) They can liquidate the business,
in which case succession planning is not an issue.
When
the company vision and the family vision both present a picture of continued
family involvement in the business, then two strong planning objectives are established: 1) the business will continue to grow and
prosper, and 2) the family will continue to manage the business.
Uh-oh...
For a family business engaged in a
succession planning process, conflict can arise in three main ways:
1) When the family vision or direction is different from the business
vision. Often this leads to the liquidation or sale of the business,
preferably by means of open communication within the family.
2) When no member of the family has the capability or capacity to lead the
company, i.e. the prospective leader is not competent, not old enough, or
not sufficiently trained. (It should be noted that capability and capacity are
two different things: capability indicates a current body of knowledge, while
capacity indicates that the individual is not yet trained but has the basic
ability.)
When the next generation has
neither the capability nor the capacity to assume a leadership role, the
company's primary objective of growing and prospering is jeopardized. Conflict
can arise with retired owners who will depend on the success of the business
for their retirement income, or with other stakeholders in or outside the
family who are committed to the business and don't want to see it fail. Or
conflicts can occur down the line, when stock is passed to family members,
ownership changes hands, and the next generation is making decisions after all.
This situation is a tough one for
parents, who have to be strong enough to recognize incapability or incapacity
in their own offspring and act accordingly. A family that wants to maintain its
involvement in the company under these circumstances can elect what we call
generation-skipping management, bringing in a professional management team to
run the organization until a family member can be adequately trained to assume
a leadership role.
In working with these companies,
we have found that when a family is surrounded with professional people, the
business can be successful even though the family itself lacks capability or
capacity. The purpose of this strategy is to create professionalism and ensure
that the business is meeting its performance goals -- in other words, to
resolve conflict, not to create it.
3) Finally, conflicts come up when the planning process has to include the
fundamental decision of focused vs. diluted ownership. Holdings are diluted
when parents, trying to be fair to all their children, seek to divide their
legacy equally. They can't break up great-grandpa's
There's a great risk in diluting
company holdings so much that nobody owns a controlling share. Usually it's
better to focus ownership, giving control of the business to just one child.
However, it takes a strong leader to avoid the conflict that is likely to arise
when a move toward focused control of the organization comes up against
emotional family issues involving the appearance of fairness toward all the
children.
The desired objective, after all,
is the long-term success of the organization. Statistics show that family
businesses where majority control rests with one individual are more likely to
meet this objective. The process of succession planning ensures that this and
other objectives can be achieved for any family business.