What If the Successor Isn't Working Out?*
by Jane Hilburt-Davis
If the next-generation member you
chose isn’t right for the job, the family and business are affected. Here’s
what to do.
Imagine choosing a successor -- a
son, daughter or other family member -- and later realizing that person isn’t
the right one for the job. You lie awake worrying about what will happen to the
business unless something is done soon. But you’re also worried about the
effect on the family. How can family harmony be preserved with such an
First, let’s look at why that happened.
It’s probably the result of several factors. A desire to keep the family
business in the family (and the majority of the respondents in the 2007 American
Family Business Survey said that was their goal) may have overruled a more
appropriate choice. And you may have put off making the decision for too long.
The 2007 survey found that “among family business owners who expect to retire
in five years, fewer than a third have chosen a successor.” There reasons for
this may include a lack of qualified candidates, inability to choose among
siblings, failure to provide the succeeding generation with career development
and training, reluctance to face retirement or the next generation’s lack of
interest in the company.
Second, why has it you taken so
long to face the situation? One reason is denial that the heir apparent is not really working out. You keep hoping that he or
she will improve. Another reason is fear of the consequences in both the business and the family. And a third is lack of confidence in a process that
stands the best chance of keeping both company and family on the right track.
I want to emphasize that things
won’t improve. (As my plumber admonished me when I ignored a small drip that
finally flooded my kitchen, “You know leaks don’t get better on their own.”)
You need to face the reality of the situation, and correct it fast. This
article offers a process to deal with this and move forward.
Joe’s sticky situation
Consider Joe, a 70-year-old founder
of a successful multi-state wholesale and distribution company. He knows he
made a serious mistake. Five years ago, on his 65th birthday, he announced that
his daughter, Natalie, then 43 and vice president of finance, would step into
his position as president. She had worked at the company since graduating from
college, was loyal and, according to her father, “watched the money like a
hawk.” She worked harder than anyone, even her dad, and understood the business
completely. Her only faults were that she was “a little gruff with others” and
not really people-oriented.
In spite of these flaws, Joe
thought Natalie could “grow into the job.” The board asked him to consider
other options, but he saw no reason to do so. Now he regrets not having taken
the board’s advice. Her “small flaws” have worsened. She’s more abrupt than
ever, is poor at delegating and has alienated contacts Joe worked hard at
building over the years. A key executive has quit, and a second is threatening
to resign. Morale is at an all-time low, and Joe realizes the responsibility
rests with Natalie.
To make matters worse, Joe’s wife,
Helen, is vehemently opposed to his firing their daughter and says the problem
is Joe’s fault. She claims he’s never provided Natalie with the support,
mentoring and resources she needed. Natalie’s younger brother, Ted, a lawyer
working at a firm in the city, has been concerned because Natalie seems
stressed and unhappy.
Joe feels guilty because he
realizes that he should not have sidestepped the board, and he should have
given Natalie honest feedback over the years. He’s also angry that Natalie has
failed at the job and put the company at risk.”
Five steps for moving forward
Joe’s painful experience emphasizes
the importance of a sound, rational succession plan. But now that the damage is
done, what should he do? The following steps highlight not only what to do but also how to handle this. Both elements are critical in a sensitive
family business transition.
1. Make sure you’ve tried everything to improve the situation. First,
ask yourself, what role, if any, you have played in the failure. Have you
stepped aside gracefully, offering support and advice only when asked? Have you
given it enough time and invested enough resources in developing and supporting
the new leader? Have you provided coaching and sought help from your board?
Have you allowed the board to monitor and evaluate the new CEO? You also must
consider whether you handed over a “mess” that anyone would have difficulty
with. I always insist on a thorough assessment of the situation and the
successor’s potential for change before a client in this situation moves to the
2. Face the facts. If the assessment indicates there is little hope
for change, the time has come to begin the transition process. Don’t waste any
time once you’ve come to this realization. The next step should be a frank and
direct conversation between you and your successor.
For example, Joe should sit down
with Natalie and talk with her as a daughter and as a president who is being fired. I always suggest that a
third person be present to help facilitate, defuse the emotions and bear
witness, if needed. That person could be a board member or an adviser --
someone both of you know, trust and respect. The goals for this meeting are to:
(1) get things out on the table; (2) agree on a fair process and transition
plan with a timetable; (3) discuss what the successor needs to save face and
exit gracefully; (4) create a plan to deal with the family and, eventually,
employees and outsiders.
Generally the person being fired is
aware of the situation and may in fact be relieved. One son-in-law who was
asked to step down told me, “I don’t like it, but if the process is fair, I can
live with it.”
3. Make a ‘parallel plan’ for the family and the business. Treat
this as a crisis, with the two parallel rails of the track being the family and
the company. Strive to avoid the third rail: a failed company plan and family
strife. Family councils are the ideal milieu for dealing openly with sensitive
family issues. In fact, I have found that families often do not begin dealing
with tough family business issues like this until they have created a family
council or other safe, structured environment. The goal is to help the family
understand the reasons for the changes, and to ask for their support during
this period of transition.
In Joe and Natalie’s case, they had
agreed at the first meeting on how to tell the family and what to ask of them.
The family had dinner together, and Joe and Natalie presented a united front on
the transition plan. They asked for Helen and Ted’s support and understanding.
A positive result of the situation is that it prompted them to form a family
To address the business issues, Joe
and Natalie met with the board. The board members were relieved, although they
wished the change had been made earlier. They formed a search committee to find
the best candidate for the job. Key company executives were informed but were
asked to keep things confidential until a few weeks before the new president (a
non-family member) came on board. Natalie negotiated a fair compensation
package and took a sabbatical before deciding what to do next. (I have had
several client situations in which the fired successor stayed on in the
company. Each of these situations has worked out because they moved to jobs
that fit their skills and had clear roles and responsibilities.)
4. Do it right the next time. Much has been written about the right
way to plan for succession and leadership selection. Do it right the first
time. Effective succession processes produce successful successors. Involve the
board, align the choice of the next leader with the company’s strategic plan,
and avoid those third rails of selection: loyalty, birthright, primogeniture,
etc. Create a family hiring and employment policy to promote a culture of
meritocracy. Problems can be avoided by sound, rational planning and a
rigorous, objective search and selection process.
Denial postpones the inevitable
Family businesses are complex
systems. A decision in the business affects the family, and vice versa. The
choice of the wrong successor can have lasting destructive effects on the
successor, the business, the shareholders and the family. Denying the problem,
hoping it will get better, refusing to face the fact that a mistake has been
made or avoiding the consequences of a difficult decision simply postpones the
You must deal with the situation
quickly and in an open and fair way, to save face for the successor and obtain
buy-in and support from those who have been affected. There is no guarantee
that this will go smoothly, but a fair process, involving the family and the
board, offers the best hope for a successful transition. Of course, it’s best
not to make the mistake in the first place, but it you have, begin now to
in Family Business Magazine
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