Leadership Transitions in Family Business

Recently I attended the S. Dale High Family Business Center at Elizabethtown College’ssession on Leadership Transitions in Family Business. The session focused on best practices with input from an expert panel consisting of: 

  • Phil Clemens, Chairman & CEO of the Clemens Family Corporation of Hatfield.
  • Tony Martin, Vice President of Business Information Systems at Martin’s Famous Pastry Shoppe, Inc.
  • Dana Chryst, CEO/Owner of The Jay Group of Lancaster.
  • Matt Diller, General Manager of Precast Systems, LLC. 
The members of the panel represented various generations and life experiences with each member providing a unique perspective.
 
One key theme that was mentioned repeatedly related to what is commonly called “Founderitis.” This is a subject I have written about before and occurs when an entrepreneurial founder is not able to turn over control to the next generation. This often has the impact of suffocating next-generation leaders. A few ways to help overcome this unhealthy behavior in a family business is to have greater self-awareness. That can be very difficult for founders and often requires hard conversations from next generation and outside advisers (i.e. CPA's or Board of Advisors...). Phil mentioned the importance of having a mandatory retirement age.
 
Another reason that founders struggle to let go is they have nothing to retire to. A key point was made of the importance of retiring to something rather than from something. This too requires a planning process and being intentional about the succession.
 
Phil Clemens pointed out that the current CEO should not select the next CEO. He said he felt it was the responsibility of the current CEO to only develop a pool of candidates. These candidates would then be mentored and developed over a period of years. He believes it is the responsibility of the family and of the Board to actually interview and select the successor.
 
There was good conversation related to the actual timing of the succession. An 18 month transition plan was deemed to be wise and included a winding down stage. The panel agreed that this stage is beneficial to the company, the current CEO, and future CEO.
 
The panel listed the following steps be taken by the senior generation for a competitive resource transition:
 
  • Invest time in the plan – 15 years.
  • Invest time in the process.
  • Create accountability and oversight for yourself and your successors…The Board of Directors.
  • Accept the pain of this life cycle in your family business.
  • Enjoy the reward of perpetuating your values, strengthening family unity and business outcomes.
 They also offered the following checklist for a competitive resource transition:
 
  1. Values: Have you clearly defined your organization’s values? Are these values felt throughout the organization – and do they help define how your company does business?
  2. Vision: Is there a clearly defined vision for the future? Has the vision been communicated to the employees and is it easy to understand?
  3. Strategic Plan: Is there a plan for achieving this Vision? Is there buy-in throughout the organization?
  4. Resource Assessment: What are the resources embodied in the current generation of leaders? (Skills, knowledge base, relationships, etc.). Have the resources required for effective company-wide leadership been identified and is there a process for transferring them to the next generation of leaders?
  5. Potential Successors: Have you identified High Potential employees as your possible successor(s)? Are these High Potential employees aware that you consider them possible candidates for high-level leadership?
  6. Development Plan: Have you identified the strengths and weaknesses of your potential successors? Is there a plan in place to address their weakness and to continue building on their strengths?
  7. Career Path: Is there a clear career path in place that will ensure the on-going leadership development of your potential successor(s)? Does this path provide successors the opportunity to build the skills, knowledge, resources, etc. required for long-term leadership?
  8. Decision-Making Process: Is there a Board of Directors (or other similar body) that can serve to evaluate the potential successors and make (help make) the final decision about a successor? Is the Board empowered to create real accountability for managing the leadership transition process?
  9. Governance Structures: Have the owners defined the structures required to ensure a successful partnership? (Buy-Sell agreement, conflict of interest policy, fiduciary responsibilities, employment policy, family member involvement policy, etc.).
  10. CEO Transition: Is the CEO ready to transition to a new place? Is there a clearly defined set of roles and responsibilities into which the CEO can transition? (Founding Partners should view themselves as transitioning up, not out.)  Is there a clear transition process in place?
  11. Financial Security: Have the economic needs of the founding partners been openly discussed? Is there a plan for addressing these needs?
  12. Estate Plan: Have the partners planned for the efficient transfer of their assets to their chosen beneficiaries? Are these plans consistent with the vision for the future of the business?
  13. Team: Is there a team in place that will support the transition? Is there a process to ensure the on-going development of this new management team?
  14. Timing and Communication: Is there a defined time-line for the leadership transition? Has this time-line and its supporting implementation plan been clearly explained to the rest of the organization?
Leadership transition is a strategy issue. If you take a resource to the grave, you will dramatically impact your company's ability to compete.
 
I believe the most important point regarding succession is the importance of planning. There's a great quote that sums up the session, "If you don't know where you're going, any road will get you there.”

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by Scott Heintzelman - Scott is a CPA, CMA and CFE living in Pennsylvania. Scott is a partner serving on the executive team at McKonly & Asbury LLP, a regional accounting firm with multiple offices in the Mid-Atlantic. The firm has been an IPA ALL-STAR as well as winning Best Places to Work in Pennsylvania for numerous years.

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