Transition of Leadership: Where the Rubber Meets the Road in Succession
A wise father posed three questions to the son selected as his successor:
1. Are we in the right business?
2. Are we able to find the right people to run this business?
3. Do we have effective controls in place to monitor them?
This founder of a very successful 50-year old business had long ago discovered that the knowledge required to answer these three questions was critical to his success. He was convinced that his successor must also have the relevant knowledge to answer these questions for his business to thrive beyond the succession process.
Continuity of a family business refers to its ability to survive across generations. In general, succession is perceived complete when ownership and authority to make the ultimate decisions have been passed to the members of the next generation. However, transfer of leadership, the final stage in succession, requires more than share transfer or leaving board seats and/or executive positions to the successors. Indeed, the answers to the father’s questions, especially to the first two, required strong leadership qualities including intuitive decision making ability.
Succession as a Mutual Role Adjustment Process
While discussing succession planning, the focus is in most cases on a leader’s willingness to pass or a successor’s readiness to take over the business. It is thought that in case any or both factors are missing, a family business’ ability to overcome the challenge of succession is limited. As this perception points out two major impediments of effective succession planning, it fails to concentrate on the interactivity between the two. Indeed, Wendy Handler defines the succession process as a mutual role adjustment between predecessor and next-generation family members[1]. This approach nicely shows the parallel stages both leader and successor go through. The leader moves from sole operator to monarch (having preeminent power over others) to overseer-delegator, and finally consultant who is disengaged from the organization. At the same time the next-generation family member moves from having “no role”, to helper (to the monarch), manager (under the monitoring of the overseer-delegator) and finally leader / chief decision maker (when the owner is disengaged). Thus, in a carefully planned succession process both the leader and the successor progress along these stages simultaneously to maintain a healthy climate promoting trust and personal development.
Aside from focusing on the interactivity between the processes that the leader and the successor go through, I find Handler’s approach particularly powerful as it accurately places the leadership role at the final stage of the succession. This is also where the rubber meets the road. Continuity of many family businesses impede not because they are not able develop shareowners or managers from the members of the next generation but leaders among them.
Inevitable Leadership Tasks Awaiting the Successor
Following disengagement of the former leader, the next generation family member needs to capitalize on value drivers, i.e., factors that has been essentially providing competitive advantage to the company and reinventing the most appropriate governance structure to ensure retaining them within the organization. Indeed, the father’s first question—are we in the right business—was implicitly pointing out the value drivers. Products or services that the company has been offering may not necessarily be the appropriate business case for the family in the future. Puzzling over the right business to be in considering the value drivers of the company help the next generation family member to fulfill its leadership responsibility of creating wealth. Limiting the new leader to a “wealth user role” might put the continuity of the family business at risk.
Similarly, the way family members are involved in the business may not be the most efficient way anymore considering various factors such as size of the business, diversity of initiatives or next generation’s past operational involvement. This refers to the father’s second and third questions—are we able to find the right people and do we have effective controls in place—. Overcoming these critical tasks requires a well-prepared leader, who shall know what to maintain and what to change. Differentiating between these requires a type of knowledge, which is only developed by effective leaders. And this is why leadership development is the most critical and often an overseen element in a well-prepared succession planning. Preparing heirs for the top of the organization through a career path in lower levels does not usually address this need on its own. While this planning approach trains the successor in learning the rules to run the business, it fails to help them develop the wisdom, which is most needed to identify when to apply these rules and when to change them.
Therefore, a carefully planned leadership development program with internal and external elements should be an integral part of an effective succession planning. Internal elements can involve periodic strategic discussions led by the successor with a specific agenda and method to unleash the tacit knowledge possessed by the leader and key executives. External element of leadership development can be established by creating advisory groups, where successors meet regularly with his counterparts, who develop themselves from each other’s experiences.
Concluding Remarks
To ensure that the rubber safely meets the road, succession process must be managed as a two dimensional process, phases of which are to be adapted according to the other. The meritocracy-based promotion as a career path may allow successor to become good and well-trained managers yet this will not be sufficient to develop strong leaders. Additional platforms must be created where successors -beyond their formal managerial role definition- regularly meet with the leader, key executives, as well as their counterparts in other organizations. The knowledge and intuitive decision making ability accumulated throughout this process will present its next leader to the family business.
- Handler, W.C. “Succession in Family Business: A Mutual Role Adjustment Between Entrepreneur and Next-Generation Family Members” Entrepreneurship: Theory and Practice, 1990, 15(1), 37-51. ↩︎
