Succession Planning Obstacles In Family Businesses

Don Schwerzler   Popular

David Jones

... find the obstacles, then overcome them...

Just like a physical obstacle course, succession planning for family businesses is like an obstacle course. You have to find the obstacles, then overcome them... fly over them, dig under them, outflank them to move around them. And it is often the ones that you didn't see that cause you the biggest problems!

Every family and family business situation is different, so there is no one "master map" because there are no fixed or defined obstructions. However, certain things do tend to appear frequently, so we've compiled our checklist of frequent obstacles. If you look for and deal with these, you will have greatly improved your chances for successful succession.

A note about terminology: we have used "Dad" to identify a founder or retiring owner.

Important Note About This Checklist! The goal is not to determine whether particular obstacles are true or not...
...If the point is perceived to be true or present, then it IS an obstacle that has to be dealt with.

Founder or Retiring Owner

First, and most importantly, Dad must believe his financial security is assured. Without this perception, there is a major obstacle and the probability of Dad leaving the business "voluntarily" is significantly reduced. What is Dad going to do with the time and energy he had committed to the business? Obviously Dad must be able to envision a positive, productive and meaningful existence away from the business. Without having something to "move to" Dad likely will not "move from"... Will the transition diminish Dad's self- esteem and negatively impact his self- concept? Very often in our society, "who we are" is generally described by "what we do". With regard to the kids, the most perplexing problem for Dad is how can he be both FAIR and EQUAL.

As a parent, Dad's instincts are to try and be equal to all his children. That is to say, he does not want to show any partiality to any one child. Yet as a businessman, he knows the business can not be run well by a committee of his heirs. It is more logical to select one of the children to lead the company into the future. Both facets of this issue produce ample opportunities for Dad to procrastinate or to avoid dealing with the entire concept of succession planning.

Is the chosen successor ready and able to run the business? If so, how can that be proven? The spousal relationship must be considered. Mom's idea of retirement may not include "sailing a boat around the world". In other words, even though the wife may not have had a visible role in the planning or the running of the business, she must be included in the planning for the transition to retirement if the process is to be successful. Although it is not frequently discussed, Dad's reservations about his fiduciary responsibility to long term, non family employees should be addressed. Who will look after them when Dad is no longer in the business?

• Dad's friends continue to work in their businesses or jobs
• Fear of death
• Reluctance to give up the power and sense of control
• Jealousy / rivalry toward successor
• Lack of coaching skills - tendency to focus on immediate problems that can be solved rather than "future" problems

Family

• spouse's role in business
• reluctance to discuss the future beyond their parents' life
• fairness versus favoritism
• fear death of parent(s)

Employees

• personal relationship with the founder
• differentiating amongst key managers
• reluctance to establish formal controls
• fear of change

Outsiders - Customers, Suppliers

• clients or suppliers depend on the founder
• clients or suppliers do not trust or have confidence in the potential successor(s)

Deal with the obstacles we have outlined here and you will have significantly improved your chances for a successful succession.