Putting the Business First?

In previous articles we have explored the challenges of succession planning within a family business.

In many cases, the different characteristics and experiences of each generation within the family contribute, and detract from, the business’ successful transition.

In this article we use a fictitious case study to explore the dynamics at play between the first and second generations, and find a solution to the challenges of succession planning.

Back story

Gene is the 71-year-old chief executive officer (CEO) of SellsWell Marketing. The business is facing disruption from new technology which is bringing advertising online and away from the core offering of print media. This means SellsWell needs significant restructuring if it is to survive in the digital world. Gene accepts that he is no longer equipped to oversee such change and is considering his options.

Gene’s 35-year-old daughter, Jennifer, is employed as sales manager at the firm. She believes she is ready to take over SellsWell and implement the necessary restructure to bring the business up to date.

Jennifer has spoken to her father and alerted him to the importance of becoming a digital operation. Her father’s response, however, has been less than enthusiastic. Jennifer feels Gene is holding her back and putting unnecessary obstacles in the way of a handover; something she believes must be done sooner rather than later if SellsWell is to prosper.

Gene, meanwhile, has serious misgivings about Jennifer’s ability to take on such a senior role.

He believes Jennifer is something of a pushover who lacks the strength of mind and experience to lead the business effectively.

The two have tried and failed to reach an agreement between themselves and have asked SBC for help.

Consultation

The first step in resolving the conflict is to separate SellsWell’s needs from the family issues. The business must come first.

Even though Gene and Jennifer are majority stakeholders in the firm they should not necessarily be running it. Indeed, the business owners may be entirely inappropriate torn as they might be by conflict of interest, or because they lack the requisite skillsets.

The family need to step back and assess the business priorities and how these can best be met. Hiring a consultant or carrying out an independent internal assessment can identify where changes need to be made and by whom.

The next step is for Gene and Jennifer to have an honest conversation. This needs to be non-confrontational employing mediation services if necessary. The two need to open the lines of communication so they can work together productively for the good of the firm.

Once animosities and sensitivities are dealt with, Jennifer needs a professional evaluation to establish where her skills lie and where she needs support. This is nothing outside the norm for employees in non-family businesses who undergo a formal annual appraisal. It is important that everyone, irrespective of whether they are stakeholders or not, adheres to the usual governance standards applied in standard business.

Once Jennifer has been appraised, her skillset needs to be compared to that of the CEO. Irrespective of Jennifer’s capabilities should be allowed to apply for the job and have a formal interview. Clearly she will only be successful if she is the best candidate, but this is an important formality.

If there is an obvious fit, then clearly Jennifer should be hired. However, if there are gaps – and in this case there are – then another person should be given the top job.

Since Jennifer is deemed too inexperienced to take on the CEO role, SellsWell will need to find an alternative replacement for Gene. That is not to say Jennifer has been passed over forever. Rather, she needs to use the next few years to build her experience and skill, and move up through the ranks as she would in any other business.

In the meantime, the SellsWell board could hire an interim CEO on a short-term contract. The business then benefits from hiring someone with industry knowledge, who has an impartial and unemotional view of the company to oversee change. They will likely be well established and looking to new personal challenge, rather than motivated by financial reward.

The interim CEO will have the strength of character to stand up to Gene and take decisions for the benefit of the company and not the family. At the same time, the experienced individual can act as a mentor to Jennifer, creating a three-year developmental plan and helping her to gain the necessary skills to take over eventually.

Intellect not ego

We all have egos and these can override our logical brain.

Often the desire to run the company – or to stop someone else running it – may be the motivator for decision making rather than intellect.

This ego over intellect phenomenon is particularly acute in family businesses and it means generation one will need to switch their mindset.

Equity stakeholders automatically have more emotional investment in the business than employees; they have skin in the game. In addition to that, generation one may also be CEO and parent or grandparent. There are several dynamics at work which need to be separated out.

In the case of SellsWell, Gene and Jennifer’s familial relationship should play no part in their professional lives at all. Jennifer should not have special access to the CEO merely because he is her father. As sales manager, Jennifer has three or perhaps four people in between her and the CEO. She needs to respect these professional boundaries and go through the appropriate channels when communicating at work.

At the same time, Gene and Jennifer also need to respect their role as equity shareholders. Although they have a majority stake in the business they need to respect the board and its governance.

The solution for SellsWell is to recognise each person’s specific area in isolation. Equity shareholding must be distinct from board membership and family separate again.  At the same time, employing independent professionals who can support the business during the period of change and ensure any successors are up to the job, will keep SellsWell on track for the future.

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